BLUF: I have a couple of properties with equity to juggle and I'm not sure of the approach to best set me up for my next REI.
Hi all. I'm looking for folks who would like to share their experiences with this problem set.
My REI background: I have some experience with flips, buy and holds and issuing loans. REI is a hobby I take seriously and something I do additional to my W2 career. I don't have an imminent purchase but would expect to move on my next deal within the next year.
Priorities: 1.Protect the assets (insurance, trust, holding co etc) 2. clear the debt 3. financially prepped for my next REI
Asset 1: Primary home
.Value 550K. No mortgage
.HELOC 250K 4.25% fixed interest only
.Debt 80K drawn on the HELOC (170K remaining)
Asset 2 LLC : Second home and STR
.Value 800K. No mortgage
.Debt 100K family loan
Note: The STR will come online this month and does not have income at this time. The expected gross rents will be no less than 60K in the first year. I have no additional debts to consider.
My thoughts. First put both proprieties in an LLC for asset protection.
Then clear the combined 180K debt by putting in place a fixed 30yr mortgage on the primary as well as maintain the fixed 4.25% HELOC on the primary at the same time establish a second HELOC on the STR. Terms on the second HELOC would be variable prime plus .25%.
This will leave me with 500K LOC (two HELOCs Combined) for my next REI purchase and approx 1K in debt service on my primary home.
Feel free to punch holes in my strategy and recommend another approach. How would a cash out look on one or both of the properties? why would I cash out and pay the debt service without a purchase ready to go? Is it better to establish a holding company to protect the assets?
@Marcello Di Gerlando Lines of Credit and HELOCs are really great products for investors but you need a plan to pay them back. Since HELOCs 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 HELOC will modify into a different product all together. Meaning after opening the HELOC for 10 years it will cease to be a HELOC. 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.
For someone who flips for example, they use the Line...then pay it back when the property sells. When someone who does "buy and hold" properties....using the Line of Credit to BUY in the BRRRR method, and then paying it back in the REFINANCE step would also be good. They are not designed to be a permanent loan. Just pay it back and you will be good!
Thanks Andrew. I concur. I understand the HELOC is a temporary solution and has been very useful in the past for me. I tend to pay it back as fast a possible.