HELOC to Pay Back Cash Investor

Columbus, Ohio
Creative Real Estate Financing
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HELOC to Pay Back Cash Investor

Max Prentis
Member since 2023 · 3 posts · 6 votes

Hello,

In the process of purchasing a Duplex in Downtown Columbus for 300k. Some minor work to finish renovations but overall in fantastic shape. Positive it will be able to cash flow well from Day 1 really. 

I have an all cash investor who is lending all 300k to me at 8%. The #1 necessity is that i have to pay back at least 50% by year end. The rest does not have a hard set repayment plan (we have a very close, personal relationship). My question is: since the house will be fully paid off according to the bank, would I be better off to get a HELOC on the house or do a cash-out refinance to make the end of year payment to my investor? I like the idea of not making principal payments. I am a Financial Advisor by profession and know that I can take what would be principal portion of payments and invest them for better returns than market appreciation.

Is there something I'm missing? I feel as though the HELOC makes the most sense, but I haven't done this before so I wanted to consult you all first.

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  • Michael Dumler
    Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
    3y

    @Max Prentis, maybe a lender can correct me, but I believe a cash-out refi has better terms/rates and lower closing costs than a HELOC. Moreover, a HELOC will have interest and principal payments after the draw period. Mostly the discussion of HELOCs comes up when an investor plans to use the funds to rehab a property or acquire more assets. If you want predictable monthly payments, then a cash-out refi is more appealing in my opinion.

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  • Steven Foster Wilson
    Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes
    3y
    Quote from @Max Prentis:

    Hello,

    In the process of purchasing a Duplex in Downtown Columbus for 300k. Some minor work to finish renovations but overall in fantastic shape. Positive it will be able to cash flow well from Day 1 really. 

    I have an all cash investor who is lending all 300k to me at 8%. The #1 necessity is that i have to pay back at least 50% by year end. The rest does not have a hard set repayment plan (we have a very close, personal relationship). My question is: since the house will be fully paid off according to the bank, would I be better off to get a HELOC on the house or do a cash-out refinance to make the end of year payment to my investor? I like the idea of not making principal payments. I am a Financial Advisor by profession and know that I can take what would be principal portion of payments and invest them for better returns than market appreciation.

    Is there something I'm missing? I feel as though the HELOC makes the most sense, but I haven't done this before so I wanted to consult you all first.


     I would call around to many different lenders. I have a list of the ones I like to use. I normally call 10-20 in a week when I am trying to do something like this. the more you ask the more options you will have. I am always blown away by what things I find out by doing this. 

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  • Tony T.
    Real Estate Investor · Harrisburg, PA · Member since 2010 · 73 posts · 217 votes
    3y

    HELOCs will follow the Prime Rate, so your interest rate would fluctuate and you have to be OK with that. Technically ALL HELOCs are interest only. If one forces you to make principle payments, you can simply write yourself a check immediately for that principle. But like it has been mentioned, after the draw period ends, you'll have P&I.

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