Rental Property Investor · Rockledge, FL · Member since 2019 · 19 posts · 5 votes
I have a rental I’ve owned since 2011, it’s appreciated significantly and I currently never plan to sell it, but I’d like to capitalize on the equity in the home without selling it, so I could possibly possible use those funds to purchase another rental. How do you go about that, or is that a bad idea?
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
7y
@Jesse Chambers there's pros and cons to it all. Here's some quick summations on the two options:
Cash Out Loan - fixed rate and rate is likely lower than a Line of Credit. Forecastable cash flow. Closing costs are higher. And you are paying interest on that money immediately. So if you don't use that money, and it's sitting in your bank account, you still have to make your mortgage payments. So you're paying for it with the interest on the loan.
Line of Credit - Lower Costs. Use it when you need it. You are only paying interest when you use it. Since LOCs have adjustable rates they will often catch people off guard when they adjust. With rates moving higher, it is likely that your rate will increase in the future. The 10 year maturity date is where the LOC will modify into a different product all together. Meaning after opening the LOC for 10 years it will cease to be a LOC. It will "mature" into a 20 year fixed rate mortgage that you can no longer draw on. And when is matures the rate will increase. I've seen typical numbers of 1%-2% higher than your current rate. Not every Line of Credit has that clause but many do.
Investor · Lithonia, GA · Member since 2016 · 50 posts · 2 votes
7y
Hello Everyone,
I have another scenario. I am new to investing and did not have quite enough down payment monies for investment properties. However, I remembered that my Mom has an investment property in California that has a lot of equity in the home. By the way I live in Georgia and planned to buy properties here. She owes about 20K however the house is now worth about 425K. My original thought was for her to do a Cash out refi and just wire me the money however, someone told me to do a HELOC. My question is, since it is just like a credit card, does my name need to be on the house in order to use the credit to by homes here in Georgia?
Rental Property Investor · Pittsboro, NC · Member since 2016 · 97 posts · 85 votes
7y
@Sophia Berry Not if your mother opens HELOC and lends you the money. You can make a purchase for cash, get a HELOC on the house you just bought and pay her back the whole amount you borrowed from her.
@Andrew Postell may have some ideas to do it another way with you on the loan with your mother.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
7y
@Sophia Berry your question would be better answered in a different thread entirely. There's lots to it and I don't want this post to be hijacked. However, to answer your question directly, no, your name does not have to be on your mom's deed for her to give you money to buy an investment property.
@Darin LaDick was that on an investment property? That seems ridiculously low for an investment property.
Real Estate Agent · Satellite Beach, FL · Member since 2014 · 65 posts · 42 votes
7y
@Jesse Chambers I am currently doing both a cash-out refi and a HELOC against rental properties I own free and clear in Brevard County. Let me save you some time. For HELOC, contact Space Coast Credit Union. They offer a HELOC against investment property at -0.5% Prime, which is the best you will find. Mine is closing this Monday at 5.5% with 80% LTV, virtual/free appraisal, at $99K line. As a bonus, the first year is fixed at 3.74%. Their rates are even better for HELOCs against owner occupied properties. With HELOCs and Home Equity products, you are capped at $99,900. Anything above $100K starts driving additional mortgage/full appraisal/higher closing cost issues, so at that point you might as well go for a full blown cash-out refinance mortgage which gives you the benefit of 30 year fixed low monthly payment, which also helps keep your DTI low. Keeping your DTI low is important, and you will realize that down the road when you start really scaling up. This is where having debt on HELOCs will hurt you.
If you really want to get the most equity out of your property (say well above $100K), and you don't mind closing an existing mortgage (say your existing mortgage rate isn't that great), then I recommend a cash-out refinance like I'm doing against my other property that I have about $175K equity in. The cash-out refi I am doing right now is through SunTrust, and it is 5.7% interest rate fixed on that duplex. Cash-out Refi's are much more difficult to qualify for, because they are full blown mortgages, and will require a healthy amount of reserves for investment properties. Space Coast Credit Union will only do Cash-out refi against single family homes, so if yours is a SFR, you can use them for both products. However, if you have a really good interest rate 30 yr mortgage already in place on your 2 properties, my recommendation would be to not close them, and instead put a HELOC on top in 2nd position to pull out your extra equity. This way you get the benefits of both.
Real Estate Agent · Satellite Beach, FL · Member since 2014 · 65 posts · 42 votes
7y
For those mentioning PenFed, as @Frankie Woods mentioned, they won't give you an equity product or cash-out refi if you have 4 or more investment properties. I did a HELOC with them early on and then our business was done. Both my wife and I are military so we also bank with Navy Federal. We have done a couple of mortgages and 4 HELOCs with NFCU. My issue with them is that their HELOCs are higher than any other Bank I have seen. Our investment property HELOCs with them are now at 7%, and they adjust monthly. Meanwhile, I have another one from GTE Financial at 5.25% and closing on one this Monday from SCCU at 5.5%. They are also slow to work with for approvals. We basically stopped using the NFCU HELOCs, and I feel like they are doing a disservice to the military community with their high rates. There are definitely better rates/deals for investment property HELOCs from local credit unions, but it takes a lot of calling around.
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
7y
@Jesse Chambers, You are correct, essentially the HELOC works like a credit card and the credit becomes available again as you pay the balance off. Every bank has nuances to their product, for instance, the one I have locks in whatever balance I have at the 15 year mark, the line of credit closes and it begins to amortize like a 20 year mortgage. However, if I am in good standing, they will open the line back up at my request and roll the balance back in. Just be sure to ask your bank those sort of details.
Philadelphia, PA · Member since 2018 · 10 posts · 3 votes
7y
@Corby Goade good thread, in regards to investor HELOC most banks will only give you a first position loan, this means they will want to take over your mortgage and that could mean losing a great interest rate you may have locked in. Look for a bank willing to do second position, I found one and got to keep all my original terms.
Philadelphia, PA · Member since 2018 · 10 posts · 3 votes
7y
@Jesse Chambers good thread, in regards to investor HELOC most banks will only give you a first position loan, this means they will want to take over your mortgage and that could mean losing a great interest rate you may have locked in. Look for a bank willing to do second position, I found one and got to keep all my original terms.
Rental Property Investor · Rockledge, FL · Member since 2019 · 19 posts · 5 votes
7y
@Jonathan Paz that's great advice man I'm gonna work our some numbers with my wife this weekend and see what we want to do. I will probably start making some calls this week. I bought both my houses before my wife and I got married we were engaged but saw an opportunity to both be able to purchase separate homes before getting married. I got one SFH in Feb 2011 in Rockledge thy I currently live in for 4.5% 30yr fixed and the second in Merritt Island SFH 4.25% fixed 30 yr.
If you don’t mind, and live in the area, I don’t know anyone else here that does real estate investing if you’d be interested in PM’ing me and maybe we can email or something and maybe one day meet up and talk Brevard County opportunities?
Investor · Almont, MI · Member since 2015 · 360 posts · 302 votes
7y
I have found out from reading these posts and putting two and two together that a HELOC does indeed lower your credit rating if you use almost all of the funds which is not a good thing (that has happened to me for the 1 HELOC we have)! Is it possible to take a HELOC and refi it into a non-HELOC so that debt ratio goes down?
Rental Property Investor · Providence, RI · Member since 2013 · 120 posts · 41 votes
7y
@Jesse Chambers as for rates, I just wrapped up a HELOC on a 2 unit that got me in at prime + 0.75%, and my lender goes above 80% LTV. If you get one for below 80% LTV, you can even get prime -.25%. I also closed one in ‘16 with Unify FCU which was interest only and that was a positive experience as well - they were based in CA at the time.
I personally recommend the HELOC so you can maximize your funds for when you need it. I've down 2 HELOC's and 1 cash out refi, and for me the HELOC is definitely preferred if you're looking to scale your portfolio at some point in the future - only have to pay interest when you take action.
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
7y
@Jesse Chambers, there are three meetups in the county, that I am aware of. @Priscilla Z. hosts one at Lucky’s Market on 192 every couple of weeks. We have some newbies who attend, and we have a title agent, and various agents who come somewhat regularly. CFRI Central Florida Real Estate Investors group has a Brevard branch; I’ve been to the meetings a few times, and didn’t prefer the up-selling of guru courses. I attended a multifamily course through CFRI, that was held in Orlando. For those looking for another place to connect, there is a group of investors and Realtors with @Scott Schuetz’s group. I don’t have the time in front of me, and so I tagged him. They meet in Old Melbourne at the Hell N Blazes brewery. So there are a number of opportunities. I do plan on hosting a CashFlow game for newer investors, if you would be interested in attending; I am in Indialantic. Many opportunities to connect!
Rental Property Investor · Providence, RI · Member since 2013 · 120 posts · 41 votes
7y
@Peter LaBreck I've done both, used a HELOC under my own name (with credit unions) and have done a commercial LOC through a different bank, under an LLC.
In my opinion, I would put an HELOC your property instead of doing a cash out refi. HELOC will allow you to use your equity over a long period of time (Usually 10 years). It will allow you to sit on (Cash equivalent) until yo find a deal.
Lender · Asheville, NC · Member since 2019 · 60 posts · 50 votes
7y
I think it may be wise to best time in a good commercial banking relationship. Borrowing in the business name is typically going to be more transparent than moving funds in and out of personal debt (HELOC). I am sure there are proper ways to find business account from personal but I'm not a CPA, just be cautious of comingling of funds.
Commercial loans typically have higher rates, however, I'm usually quoted prime plus 0.50% to 1.00%, which are similar terms HELOCs.
They typically only amortize on 20 year terms (sometimes 25) so that can decrease cash flow but accelerate principal refuction.
Rates are usually locked for only 5 or 7 years. But, if one really uses leverage, on a 20 year am, pulling out an additional 20% equity is feasible after about 6 years. So the fixed rate portion is irrelevant IF continuous refinance and maximizing leverage is your strategy.
Rental Property Investor · Rockledge, FL · Member since 2019 · 19 posts · 5 votes
7y
@Kerry Baird thanks my wife and I were just talking about the cash flow game, if you wouldn’t mind having us we would love to attend one night. I do have a 1 yr old and 3 yr old so my time is usually on their schedules, but would be great to get together. I just sent you a connection and I’m going to see about attending a meet up at Luckys
Rental Property Investor · Rockledge, FL · Member since 2019 · 19 posts · 5 votes
7y
@Bruno C. Not to change the subject but in terms of the LLC, if you already own the property yourself do you sell it to the LLC or how do you move it to an LLC?