I have a rental property with over 100k of equity. I want to access that money to buy another rental for a long term hold. I also want to keep the current rental that has the equity long term and not sell it. What is the most traditional strategy to for this? I would do a cash out refinance but the home was formerly a primary residence and the rate is fixed at a much lower rate then what I would get if I did a refi as a non owner occupied loan. I know it seems like a simple question but the only option I see is to do a HELOC or Home equity loan. I guess the home equity loan would make the most sense to fix the rate. Even though I might be paying 5% on the loan, the goal would be to control a larger new asset and experience the long term potential appreciation benefits of the new property as well. I would like to continue this process to continue acquiring more rentals long term, just want guidance for a blueprint for repeatable long term hold strategy to pull out equity. Thank you!
@Dave S. By what you described, it sounds like a home equity loan would be the best scenario for you, however getting a HELOC on a rental can be difficult. They are out there, but very few and far between for the higher CLTV or combined loan to value ratios. If you cant find one that works for you, you will be looking at a traditional non-owner occupied cash out refi to access the cash. I would suggest you look at credit unions for the HELOC your looking for.
Thank you Kevin! I really appreciate the guidance. I will give that some thought and look into your ideas.
@Chris Mason may have some insight.
@Dave S. , what you're describing is known as the "BRRRR strategy".
ie. Buy, Rehab, Rent, Refinance, REPEAT.
(Use the search function above to find many threads, by clicking on the little magnifying glass).
Just so you know, "$100k equity" can be enough, or not enough, depending on its PROPORTION.
eg. If the property's worth $500k+, then (only) $100k equity is not enough to get cash out to re-invest.
Note: Chris Mason already voted on John Thedford's post above.
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He's a LOAN Officer / Lender, amongst many other helpful traits. Welcome to BP...
@Dave S. you've had some good comments here already and just wanted to add some additional pointers. If you were to receive a "conventional" cash out loan, you can only receive a loan for 75% of the value of the property. So the $100k equity could be enough depending on the total value of the property. A "portfolio" or "Commercial" cash out loan could go higher but the rate and terms will be higher/worse. A HELOC will be very difficult. Finding a bank that offers HELOC's on an investment property are very limited and most want to be in the 1st position...meaning if you foreclose they get paid before the other mortgage. The other mortgage company would have to sign paperwork agreeing to this...which they will not do. It's not completely impossible but extremely difficult. If you could provide the value of the property and the total loan that you currently have we could show you some numbers you could expect to see. Thanks!
Its investment property so HELOC option is very hard. You have to cash out or you get a loan on new property. Do your calculations which action will save money.
Are you sure your current rate is better than what you would get on a non owner loan? You might be surprised with where rates are now.
Dave, check Union Bank. They will write you a line of credit up to 65% LTV of TOTAL debt on an investment property. The property has to be in California, Oregon, or Washington.
The advantage to the line of credit vs a loan, is that you can set up the LOC way before you actually draw upon it (vs the loan where the give you a pile of cash then & there where you are ready use it or not). Also, the interest rate is lower.
One you draw on the line, you can also convert it to a fully amortised loan if you wish (at a higher rate).
Pennfed also does this but only for 12yrs and INTEREST only.... variable... not horrible but the variable piece is risky.
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