Need advice on how to pull equity

11 Replies

Hello, this is my first post on Bigger Pockets.

I was hoping someone could advise me on how to pull equity on an investment property (condo) I own in the state of Florida (free and clear - no mortgage) for a future investment property in California (where I live). I know there are home equity lines of credit and home equity loans. I dont need a hard money loan as I have decent credit. Thanks!

As long as you and the condo are financeable, just get a cash out refi. That gives you a long term and a fixed payment.

If you're looking for a specific lender you will need to post in the Marketplace.

I would suggest getting line of credit put in place against your investment property for up to 50-60% of the appraised value. If you have good credit and verifiable income that should be very attainable. The advantage of a line of credit is that you can only use the money when you have something to invest it in (i.e.another property). If you do a straight refinance then you will have to pay interest on the money as soon as the refinance is complete even if you don't have anything to invest it in yet. Plus with lines of credit you should have very little if any closing costs, so in my opinion they are your best option.

There are trade offs between a fixed loan and a line of credit.

Line of credit

-Harder to get on investment properties.

-Can be blocked by lender at any time without notice

+may have a lower interest rate

+only pay interest when taking the money

+interest only if not locked

-shorter term if locked (i.e., you want to keep the loan in place while you hold a property)

-Usually higher rate when locked

Mortgage

+more commonly available for investment properties than lines of credit

-pay interest starting at closing

+locked in long term money, good if you're using this to buy something to hold

+no locking or calling

I think a line of credit makes sense if your going to pay the money back fairly quickly. Such as using it for fix and flips or to buy with cash and then refinance. OTOH if you're using the equity from this house as the down payment for another and you don't plan to pay it off quickly a mortgage will give you a longer term, fixed rate loan.

Smaller banks are a better bet than the big boys. Start calling banks in your area and asking about RE investment loans. Most will say no, but ask if they know a lender that does them.

excellent advice from @Jon Holdman one small clarification he means near your fl property when he says I'm your area.

Thanks for the replies! It seems that most banks advertise only up to about $100k for a heloc. The condo is worth $300k. Is it possible to get a $200k heloc or just equity loan? I am leaning toward the heloc since we have not yet identified a new property to purchase.

Can't speak to limits on LOCs. Its not really a HELOC because its not your home. Those ads do not apply to an investment property. You need to make some calls to find out if they will do those at all on an investment properties.

If you use that money for a down payment on a new property, be aware that the lender will ask you if any part of your down payment is borrowed. That may affect your ability to get the new loan.

@jon

I often hear people say that pulling equity from a property is a great way to have money for a downpayment for another property. Since it is borrowed, how do people then continue to get the loans for the remainder of the purchase price? Seems that I may be shooting myself in the foot if I borrow (using a heloc or home equity loan) for downpayment.

@Rainier Guiang ,

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Raymond

I recently worked at Fifth Third in Ohio(They operate in Florida too). I know they were doing 60% LTV LOC on investment properties. I do know they had harder restrictions on Condo's and specifically properties in Florida...but worth giving someone knowledgeable a call there.

@Rainier Guiang makes a good point in his last post and I'm interested in hearing responses. If you are taking out a loan for a down payment (either a line of credit or refinance loan) does that negatively affect your chances of getting the mortgage to pay for the rest of the home? Will the mortgage company look at the fact that you just took out this equity loan/line and deny your mortgage request?

It all depends on your Debt to Income ratio or DTI. You need to be under 40%-45%. The Underwriter will look at all your debt and add whatever the payment is from the Heloc and the payment for the new mortgage your looking to take out to your debt and determine your DTI. If you're below 38-40% you should be good.

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