HELOC against a rental property?

18 Replies

I have a SFR rental property that I own free and clear. I’ve had if for just over two years and and have had good experiences so far with being a landlord. Now, I would like to take another step into REI and go after my first fix and flip deal. So I though that a HELOC against my rental would be an easy money stream and the perfect way to purchase a property and incrementally pay for the rehab. The only problem is.........no one wants to touch it! I’ve contacted approximately 4 different lenders and they all say that HELOC’s are for primary residences only. Does this sound reasonable and accurate? Am I trying to do something that can’t be done?

Call small credit unions.  Also, consider a home equity loan or refinancing.  

Originally posted by @Bryan Cork :
I have a SFR rental property that I own free and clear. I’ve had if for just over two years and and have had good experiences so far with being a landlord. Now, I would like to take another step into REI and go after my first fix and flip deal. So I though that a HELOC against my rental would be an easy money stream and the perfect way to purchase a property and incrementally pay for the rehab. The only problem is.........no one wants to touch it! I’ve contacted approximately 4 different lenders and they all say that HELOC’s are for primary residences only. Does this sound reasonable and accurate? Am I trying to do something that can’t be done?

 If you're cold calling, I'd guess it'll take 25 or so before you get a hit. 

Your go-to conventional non-HELOC lender can probably provide a referral -- it's normal for us to know the niches we can't address, and to know who can.

Another possible source, if you don't want to cold call, would be your local REIA.

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Wells Fargo offers HELOC on investment properties. The terms aren’t as good as you could get on your primary residence...but they are not bad.

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@AJ Nettles
Thank you as well for the lead👍🏼

Question...trying not to hack this thread. 

Assume you can get a HELOC on your rental property...how does this count against you when you are looking for your next property?

re: thread

Technically, I believe that the fannie/freddie guidelines state that they count the spots based on the the number of houses you have mortgages on. Not the number of mortgages themselves.

So if you had a first mortg and a second mortg (i.e. heloc) on an investment property, that would still only count as one.

Back to the thread though. There are banks that will do heloc's on investment properties. First Midwest bank here in illinois did one. They had a guideline of only owning 4 properties to do that loan and the heloc had to be in first position. So I had to do the heloc and pay off the existing mortgage as part of the refi.  btw: I had well over 4 properties at the time I got this but the underwriter nor the rep knew that was a guideline and I snuck thru.

Also, huntington bank does heloc's as well. But they have a 4 limit too.

My guess is that as long as you have less than 4 mortgages in your name, you'll be able to find a local bank over there that can do a heloc. Just call the phone book and eventually you'll find one that does.

PenFed got me pre approved today! Very stoked for sure.....and seems like a good deal prime interest rate and up to 80% ltv. So thanks to all my BP homies for the advice 😁

They asked me those questions and I got a bit nervous thinking I was hitting a dead end. But then the woman on the phone asked me if I have ever donated blood to the Red Cross, and I said YUP! And she said good enough!
So apparently I passed the test 🙂

I was going to suggest East West Bank. We are set to sign closing docs for our HELOC on our rental properties sometime this week.

Do you plan to continuously use the money from your rental for other properties for quite some time?

If so, I would look into a conventional loan instead. You can somewhat lock into your cash flow since your rate would be fixed and would get past some of the downsides of a HELOC (generally only a 5 year draw period, variable rate, and usually a 15 year amortization).

If you are thinking of this as a short term thing, a HELOC would be fine, but if you are thinking of tying your property up for a long time to fund other investments, I would look at a conventional loan myself.

@James W.
I’m fairly new so take my opinion as just that, but my opinion is that I won’t know how much I will need project to project, and I won’t know for how long the funds will be deployed and paying interest on it. So taking out a lump sum and paying continual interest on all of it didn’t seem to make sense to me.

@Bryan Cork HELOCs generally only have a 5 year draw period, so it gives you flexibility for a period of time, but it also comes with the downfall of a shorter amortization which will hurt your cash flow and ability to scale in the future if you plan to continue adding properties.  

I like to match the financing with the asset's ability to generate cash if possible.  If I plan on having a long term property, I prefer to have long term fixed rate financing.  It improves my cash flow and I won't need to worry about changes in interest rates impacting my cash flow in the future.

I'm not sure on what timeframe you would be looking to keep the property for, but one option could be to get the HELOC and use it to purchase the property with the option of getting a conventional loan later.

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