Investor · Warner Robins, GA · Member since 2016 · 28 posts · 3 votes
Assume you have a 100k HELOC, I understand the leverage power of purchasing 5 100K properties using 20K down each instead of paying cash for 1 100K property, this concept seems to work best with buy and hold properties, in my opinion anyways. What about Flips? It makes sense to me to pay cash for a flip assuming you have the purchase price and rehab price available in a HELOC, considering the idea that your expecting a fairly short project life span. Would it ever make sense to seek traditional bank financing (assuming the property is financable), use a portion of your HELOC for a down payment and rehab expense. Just curious to hear others thoughts about using HELOC for flipping instead of buy and hold.
Thanks for perspective @Matt M. Still looking for that ideal hard money connection.
@Kennesha Powell I am typically a buy and hold investor. Looking at my first on purpose Fix and Flip deal now actually. Planning on a 60 day turn around but expecting 90 days most likely.
Just reach out to a few HM lenders and get a feel for them. I've settled on one here in Denver that is easy to work with. They have all my info, and I just have to call them with a property address now.
Hey @Matt M. thanks for the guidance. Can you recommend a place to start looking for available HM lenders, or do you recommend anyone i could speak with about this approach?
I called a few I found online and on craigslist(local). Then I got a recommendation from one of my clients for my current HM lender. I'd checkout a local meetup.
Hey @Rob Moran I personally like using the HELOC for the down payment with traditional bank financing for buy and holds. It allows for faster growth vs using the majority of your LOC for the total purchase.
@Rob Moran I try and do cash out refinances when I have enough equity in a property. I have not had any luck getting the bank to do a LOC on an investment property but alot of people get them. I need to shop around more I guess.
@Ramsey Howard I find the HELOC to be an extremely strong tool, IF it is large enough and your market does not support long bank approval processes. In the SF Bay Area where people are competing against all cash buyers, having a HELOC in place makes you look like a cash buyer. Once the property is acquired, I start working on stabilizing the units and increasing rents. Once this phase is completed, I put a permanent loan on the building and pay down my HELOC. This in essence is like reloading the gun and I start looking for the next property. Because the HELOC is in place I don't have to go through a loan process.
Great advice @Arlen Chou. Thanks! I agree with your approach, honestly I can justify most every approach assuming the numbers are good, just hoping to see several different perspectives about how everyone else is doing things! I invest in a slow market, although it is a lower income market so prices are also low. I am just struggling with the idea of tying up all of my LOC into one property that may take 6 months to sell after the rehab, if I tied up all of the LOC into one property I would likely miss other opportunities. Also because the bank normally likes a property to season, if I tied up all of the LOC into a buy and hold I would also have to wait to replenish that LOC. Just trying to keep all my options clearly understood so I can be as agressive as possible.
@Ramsey Howard I totally understand where you are coming from. Let me tell you a short story about 2 bulls on a hill... There are 2 bulls, one young one and one old one. They look down the hill and see a large group of cows and the young one says to the old bull "let's run down there and dance with a couple of cows". The old bull turns to the young bull and says "why don't we walk down there and dance with them all". I take the old bull approach and believe that in a buy and hold strategy there is no need to rush into anything.
If you are worried about tying up you LOC in one transaction when buying a rental, you should look into delayed financing. If you are able to buy at 70% of appraised value you are able to get all of your purchase price plus closing costs back usually within 30 days or so of the purchase. There is no 6 months seasoning requirement. You must make the purchase in all cash and you are limited to 70% LTV for non-owner occupied.
@Stacey Paulin check out APCU Atlanta Postal Credit Union or any local community banks in the Atlanta area. I just prefer credit unions based on past experiences they seem to be more willing to work with there members.
@Ramsey Howard and @Arlen Chou I was actually talking to a friend who works at a bank today, and he said that most banks he knows look back at a seasoning period for down payment money - if they see the money enter your checking account within the previous 1-3 months (depending on the bank), they'll want to know where it's from. Is that your experience? He added, however, that the way around it is to just let the cash sit in your account for a couple months (and take the interest hit in the name of your investment).
@Matt M. what do you suppose the fallout would be (on a large scale) if property values crashed within 12 months of someone taking out a hard money loan? Refinancing would become very difficult. I'm not projecting a crash, I'm just trying to learn all my downsides (it's much easier to learn the upsides). Thanks.
Currently using a LOC (secured by an investment prop) for the downpayment and rehab costs (about 42k all in) on a buy and hold.
The plan is to aggressively pay down the LOC with the cash flow (or refinance with enough appreciation).
The credit line is interest only for 10 years with a low rate.
@Simcha Davidman your friend is correct, but I would not call it "seasoning". As part of their loan verification process, the bank will want several months of bank statements. Three months of statements should be enough for them to do their verification. They just want to see that you have liquid assets. They will also see that you have HELOC in place, but as long as your DTI can cover you, you should be fine. This is basically what your friend is talking about.
@Ramsey Howard, when I buy SF or small MF properties, I use my HELOC as an advantage in order to be able to be a cash buyer. Assuming you are buying your properties right, you can then do a refi within 30 days and get all your money back, therefore giving yourself an infinite COC return because you have no cash in the deal! I have done this about 15 times the past 18 months and it works great! Good luck!