Hey everyone, question for the group. I currently have two rental properties I want to figure out how to leverage so I can start growing my real estate profile. I do not want to leverage a HELOC on my primary residence for reasons I don't want to get into here.
What is the best way to leverage the equity that I have in my rentals? I was going down the path of a cash out refi, but every lender I spoke to said it was a bad idea because the rates are too high. It would essentially kill my positive cashflow.
I was told I could get a HELOC on my rental property. I spoke to several local lenders, but they said no one would give me a standard HELOC on my rentals, but that I could get a LOC (Line of Credit/Commercial Line of Credit) that is essentially the same but with significantly higher rates. Am I understanding that right? Is there something special I am missing?
I know questions like this get asked a lot, but I'm feeling pretty defeated right now.
I've thought about selling, but I currently have a tenant in both properties. Have you dealt with that situation in the past?
Actually dealing with it right now. Selling one SFH and doing a HELOC on another. If you're thinking about selling, at the end of their lease put them on month to month and tell them you're thinking of selling and offer them first option to buy it. It's easier to sell vacant or on a MTM lease so the buyer can either move in or sign their own lease with tenant. If you're looking to scale, evaluating your ROE at least annually is a good idea.
HELOCs are interesting in the sense that the lending standards are very local. They're much more local than traditional nationwide refi standards. Each credit union will have a different process so I'd encourage you to keep poking around and see if there is an available line of credit with more normal rates.
Your HELOC won't likely unlock more than 80% LTV of funds so you could consider selling one of the two properties. If I'm guessing right, you have a good chunk more equity than just 20% so unlocking all of it may not be a bad decision. I sold two of my eight properties last year to unlock more capital and get my foot in the door for bigger purchases.
@Joshuam R. They are under my personal! Thank you for your reply. What kind of institution are you getting your HELOCs through? Trying to figure out how best to narrow down my search.
@Joshuam R. They are under my personal! Thank you for your reply. What kind of institution are you getting your HELOCs through? Trying to figure out how best to narrow down my search.
Using Navy Federal.
But go for local credit unions is best. Not big banks.
Hey everyone, question for the group. I currently have two rental properties I want to figure out how to leverage so I can start growing my real estate profile. I do not want to leverage a HELOC on my primary residence for reasons I don't want to get into here.
What is the best way to leverage the equity that I have in my rentals? I was going down the path of a cash out refi, but every lender I spoke to said it was a bad idea because the rates are too high. It would essentially kill my positive cashflow.
I was told I could get a HELOC on my rental property. I spoke to several local lenders, but they said no one would give me a standard HELOC on my rentals, but that I could get a LOC (Line of Credit/Commercial Line of Credit) that is essentially the same but with significantly higher rates. Am I understanding that right? Is there something special I am missing?
I know questions like this get asked a lot, but I'm feeling pretty defeated right now.
I was resistant to a HELOC on this current purchase as well due to the variable rate\ but I ended up using it for this thought process: Lower rate, and I was actually able to lock in at 5.5% (pretty much prime rate) fixed for 10 yrs , amortized over 30yrs, Lower closing costs by far, less restrictions on what I purchase - when I started down the 30yr conventional route, my lender was very scrutinizing and rejected one unique property that would have fit my needs..I support the other suggestions, go local.
@Anthony King This breakout is a few months old, so I have a bit more. See below:
Property 1 - $188k 75% of that would be about $100k (75% would be based on cashout refi)
Property 2 - $108k 75% would be about $80k (75% would be based on cashout refi)
I ask because at some point your return on equity gets low enough that it makes more sense to sell. A HELOC is great if you decide to keep it, but if you're only making a couple grand a year and you have 100's of thousands in equity, you're probably better off doing a 1031 into more properties/doors.
I've thought about selling, but I currently have a tenant in both properties. Have you dealt with that situation in the past?
Actually dealing with it right now. Selling one SFH and doing a HELOC on another. If you're thinking about selling, at the end of their lease put them on month to month and tell them you're thinking of selling and offer them first option to buy it. It's easier to sell vacant or on a MTM lease so the buyer can either move in or sign their own lease with tenant. If you're looking to scale, evaluating your ROE at least annually is a good idea.
@Brad Jacobson Got it, thank you! So should I google for local credit unions and go down that path?
Hi Mike, would suggest trying TD BANK (for investment property) for a fixed rate home equity loan as well as a floating rate HELOC. Chances are home equity loan will get you a better rate, based on a recent conversation. Please let me know if you come across any other options. Navy credit Union didn’t work out for me due to their membership requirements(military/veteran only).
@Shantanu R. Just got off the phone with them. They don't operate in Missouri, unfortunately, but they did give me a few institutions to contact!
I see, good to know. Another option is DCU(digital credit Union) which gives up to 50k on investment property but I don’t know if they operate in Missouri. Keep us posted if you find any other viable options. Best of luck!
You’re looking for a line of credit on a non-owner occupied residence. Use “non-owner occupied” in your Google search for better results. The term will often be in the small-print lending disclosures/footnotes on the webpage.
When you call the bank/credit union, ask to speak with the lending department. Don’t waste your time elsewhere.
When you get someone on the phone be clear and concise up front: “I’m looking to open a line of credit on a non-owner occupied residence in [state]. Do you offer that product?”
If you get positive results, share them on BP People are always looking for LOC sources They come and go as banks need them/have the appetite for them.