Skip to content
Creative Real Estate Financing

User Stats

1
Posts
2
Votes
Rodrigo Muller
Pro Member
2
Votes |
1
Posts

How to properly use a HELOC to help finance first investment property

Rodrigo Muller
Pro Member
Posted Mar 6 2023, 11:37

Newbie here, hope everyone is having a lovely day! I am currently educating myself and looking to get my first investment property this year. My current situation is, I own my primary residence in South Florida and I'm sitting on around $500k in equity. I'm currently looking to get a HELOC on the property for a down payment and get a mortgage to finance the rest. My question is, about how long do I wait to refinance and pay off the HELOC, and, is that the best way of going about it? Just trying to plan my strategy so any recommendations would be greatly appreciated! Thanks in advance!

User Stats

20
Posts
10
Votes
Joshua Townsley
  • Real Estate Agent
  • Miami
10
Votes |
20
Posts
Joshua Townsley
  • Real Estate Agent
  • Miami
Replied Mar 6 2023, 12:04

So it will certainly come down to the property and when interest rates lower again. You are going to want to finance at the current 6ish% for a lot longer if all of a sudden rates jump to 15% or something crazy and same goes with refinancing right away if the rates drop big. Likewise I am always a fan of buying for cash flow (unless the goal is to flip) if you buy for cash flow then you know your mortgage is covered and that you can wait until the time is right to refi.

Overall I would find the right deal and make sure the numbers are solid (don't be overly generous with rental estimates or not thinking about all possible expenses) if the numbers are good then you can cash flow, if you can cash flow then within a year when rates stabilize and you add value to the property you will likely be able to cash out without too much of a problem.

BOL!!

User Stats

207
Posts
205
Votes
Jon Puente
  • Lender
  • Charlotte, NC
205
Votes |
207
Posts
Jon Puente
  • Lender
  • Charlotte, NC
Replied Mar 6 2023, 12:22

Hey Rodrigo, 

There are too many factors here at play that it's hard to answer your question with a definitive answer. You need to have enough equity in the home to be able to refinance in the first place. Also, if you are looking to do a cash-out refinance on the investment property, the max LTV is 75%, so you need to at least have 25% equity to do a cash-out, and then you would need enough equity to payoff the HELOC entirely.

So how long do you wait? Until you can get a better interest rate than you have (or close enough to still cashflow) and until you have enough equity to make it happen. 

Is it the best way to do it? Yes, IF you can get an amazing deal upfront, and can do some value add to increase the value faster than waiting for market appreciation and loan pay down. Using a HELOC will backfire if you do not make your money at the buy.

Great Question!

FlipSystem logo
FlipSystem
|
Sponsored
Learn From Our Team. Earn 100% of the Profits. Join our community of 500+ investors! Avg profit per flip: $14k, Avg effort per week: 4hrs

User Stats

175
Posts
79
Votes
Adam Schooley
  • Real Estate Agent
  • Fort Lauderdale, FL
79
Votes |
175
Posts
Adam Schooley
  • Real Estate Agent
  • Fort Lauderdale, FL
Replied Mar 6 2023, 13:28

@Rodrigo Muller I'm here in South Florida and I have a HELOC on my primary residence. I am currently using my HELOC to fix and flip a house in Davie. This is a quick use of the HELOC (3 or 4 months) as I will resell the property and payoff the HELOC and move on to the next property. I could also do the BRRRR stradegy for this property and payoff the HELOC once I do the refi but with the current interest rates, taxes and insurance it doesn't make sense to hold it. As stated above this really depends on your strategy. It sounds like your thinking of buying and holding the property. What type of property are you thinking about usung this stradegy with? Are you thinking of doing annual leases or doing more like short term rentals like AirBnB to get higher cash flow. If you have questions about the HELOC itself, I'd be happy to share who I used and the process itself.

User Stats

179
Posts
56
Votes
Replied Apr 18 2023, 03:19

Rodrigo

Heloc is the best tool you can use to put to work the equity in your home. But there are many things to consider. Heloc is going to be on first position or second to your actual Mortgage. What rate and terms do you have on the actual mortgage.

Pay it back never.... if you can leverage that capital as a 10% of a 100% investment why pay it back and keep on using it.

Give me a call to chat we buy multifamilies,  I currently own 6 and all started levering my House equity. 

You need to have a good knowledge in Real estate to invest.  Since you are putting risk on your home.


Good luck