Using existing equity

3 Replies

Hello BP members,

I have a question about using existing equity in a house. Lets say theres a rental house I have, its paid off (no debt on it) and has appreciated nicely. I'm looking to purchase another property in the near future, what is the best way to use the equity in that house as it is just sitting there locked in not doing too much...

I have good credit and have cash for downpayment or even to buy a smaller place outright in cash if it made the deal better. What are the best ways to use it this equity? I guess it is probably not as useful in just buying another property if I already have cash for it, but in the future it could allow faster leverage in acquisitions?

Just some curious thoughts on how to take advantage of the equity.

I think a HELOC (Home Equity Line of Credit) could be very useful.

You can open this up with a bank of your choosing and once approved for an amount you can let it sit there but it is available for use when you need it.

This can be up to 85% of your homes value (maybe more?)

My first couple of questions is what is your strategy in REI. If you are BRRR'ing or simply buying holding could provide different recommendations for each.

Overall when it comes to the equity in the home you could use a Home Equity Loan which allows you to use that money to get into another home. I've heard this can be great as you don't have to deal with as much paperwork when closing on a home that is being bought outright with a HELOC (This is my understanding, I have not used this method). From there if you are Brrring you can do the work on the home (using the HELOC) and once work is done you could do a 'refinance' on the home as a conventional with 20% and pull out the remaining cash which is then used to pay off the HELOC you used to get into the property.

Once again this is tact I have read up on but have not personally utilized yet. Overall I'm a big believer that if you are trying to grow your portfolio via leverage sitting equity is making you 3-4% (Percent on a home loan) whereas if you find a great deal you could be making 10%+ on a rental or even more!

Not sure if this helped answer your question but knowing your strategy might help others speak to other options you have when leveraging equity (If that is indeed your goal).

Okay, I guess one of the questions I have is can you combine a heloc and a traditional mortgage, or is there a different type of product for this? 

I guess I don't see the value in using the heloc for the 75-80% that would be covered in a traditional mortgage unless I'm getting a better rate (unless there is and I just don't know it), so my thought was using the heloc for the downpayment portion. Or is it better to use cash I have that is on the sidelines. Basically I have both cash and equity in this house sitting on the sidelines, and what is the best value to use - the bit of cash was keeping to use if there was a downturn / opportunity  / pull back in some market (housing or equity). I guess I could use the cash and if there are opportunities could use the heloc then. I guess mostly wondering what the better of the 2 options are and if there are any lending products in this situation I'm not aware of. What would you guys do? (aside from get more RE like yesterday)

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