HELOC/S8 Strategy - Am I Way Off?

6 Replies

Hi BP-

So I've been tossing this idea around for quite some time now and I'd like fo you guys to poke holes in it/educate me if I've missed something.  Here it goes.

I'm planning on going into section 8 as a method of passive income.  Here's my strategy.

1. Purchase property <45K cash. Plenty available where I am buying, plenty of demand.

2. Fix - Rent via S8.

3. In the location I am looking to purchase "Average" S8 rent is 1100/month

4. Here's where my plan may be flawed, but I've never tried this so please educate me. Take a HELOC out and use to pay cash for next S8 home ensuring payment is 1/2 of S8 rent coming in. From what I understand a HELOC is 70-80% of the appraised value, the home's I am looking at purchasing need work and appraise for 20-30K more than I'll pay. So that puts some additional cash in my pocket.

5. Repeat. Is there a limit to how many HELOCs I can have? What if i paid cash for the home and placed the home under an LLC? Is it harder to get a HELOC if the home is under an LLC?

So what do you think from a 30,000 foot view.  Would it work?   Thanks guys. You rock!

A HELOC or home equity line of credit is a loan using your personal house as credit. If you don't have any equity in your house, you can't get a HELOC. The amount of money you can take out with a HELOC is based on the amount of equity you have in your personal house. Say if you have a paid off house worth 100k, the bank will let you have 80k for whatever reason you want to use it for. Car, house vacation. Once you apply and have access to a HELOC, it is pretty much like cash. If you don't pay it back, the bank can take your house. A good strategy to use would be to buy your property including repair cost with your HELOC. Repair and rent out the house you purchased or Flip it. Then refinance your rental with conventional mortgage and pay your HELOC back. Then repeat. You can only get one HELOC per property. Good luck!

Buying a house for $45k that rents for $1100 works great, but those deals are very tough to find.  Maybe the house is $45k, but the repairs needed might put you in the $80-$90k range or more.

The reason i say that, just about anyone would snatch a house that should lease for $1100 at a lot more than $45k (assuming that is a 'all in' price),,,maybe you found some hidden treasure of under priced houses (if you do run out and buy as many as you can),,but the market will generally keep that from happening,,

As far as HELOC's go, I don't know that you can use the equity in a rental property for a HELOC (I'm not saying you can't, but I don't believe you can). You can get a mortgage for 75% of the appraised value, so go that route

I would be very interested in buying in your area if you can get those kind of ratios.

We were able to get those deals for our FL condo rentals from '10 to '12. We took Helocs on each property to buy the next one. Most of the Helocs were 10 years interest only, about 4.25%, 70% LTV, with $150 app fee if I recall correctly. There is a $50 a year maintenance fee for each one.

Unfortunately, those days are over for now. These Helocs were through TD Bank.

Yes, those deals exist.

Crap! Now the secret's out.

Lol.

Yes it is true, But they are slowly disappearing.

Big Henry

Primary residence: 70% ltv

If the heloc is on an investment property or on a 2-4 plex the ratio falls to 60% ltv.

You can't do a heloc if you have more than 4 financed properties. If anyone finds a lender who will do a heloc after 4 please let me know.

Pros: no appraisal fee. Only a small application fee.

Cons: many Helocs were arbitrarily frozen during the previous real estate crisis when people needed them the most. If you are going to open one up I would take all the money out ASAP.

Helocs are great. I wish there were more of them to be had.

Hope that helps