Rental Property Investor · Minneapolis, MN · Member since 2016 · 50 posts · 15 votes
Hi BP world, if my wife and I are diligently saving around 1/2 of our paycheck for 20% down SFH deals (total of seven is the goal- two down, five to go), we may find ourselves low on personal reserves from time to time. Has anyone gotten a HELOC on their investment properties as a way to protect them from a rainy day in their personal lives (job loss, unexpected medical costs)??
Investor · Holladay, UT · Member since 2017 · 53 posts · 21 votes
9y
Good Morning Nathan,
After you have acquired your personal residence there are sources where you can obtain a Home Equity Line of Credit (HELOC) for the equity portion of the property.Some sources require a seasoning period. This requires you to purchase the property below the market value now in order for you to have immediate equity for a HELOC.
I also have sources which will fund a cash out refinance on positive cash flow rental properties.
If you have an operating business entity you can establish credit lines fairly easily with no collateral requirements or fund use restrictions.This funding is excellent for investment real estate and business start-up and expansion.
For personal job loss you should consider “Key Man” insurance.It is very affordable and a business deduction when purchased by your entity. Be sure your operating agreement gives the entity permission to provide “Key Man” benefits to its members or business executives. Your attorney or tax specialist should have the expertise to assist you in preparing the operating agreement correctly.
If you are not self-employed I would encourage you to do so immediately.With self-employment you have immediate legal tax benefits for personal income retention just like Warren Buffett.
Rental Property Investor · Minneapolis, MN · Member since 2016 · 50 posts · 15 votes
9y
@Bret Ehlers Thanks for the info. I am not entirely too worried about job loss, but was curious about the options. So a HELOC isn't an option on one my my rental homes, but only my personal residence? If so, I have one of those too in which we've put down 20%, paid monthly interest and principal payments (albeit, not much on the principal side in the early days of the loan!) for the last three years and the property has appreciated quite nicely.
Investor · Holladay, UT · Member since 2017 · 53 posts · 21 votes
9y
A HELOC can be obtained on a rental property. I have not seen any at 100% since the crash of 08. Make sure you are purchasing your rental properties with immediate equity. Do not use CAP rates to purchase your income properties. The CAP rate formula fails to include the annual debt service for the mortgage interest. Only real estate agents and the seller make money using CAP rate evaluations. You greatest source for a HELOC on a rental property will be your relationship with a credit union or smaller community bank.