I live in a townhouse for which I paid cash. Then I formed an LLC for my REI’s. I’m thinking of a HELOC for short term deals/flips and was wondering the following...
1) Should I take out a HELOC on my townhouse or my one and only investment property?
2) Is there any benefit from to putting my townhouse in my LLC’s name?
3) What other Question should I be asking?
Also...check out my intro in the introduction forum for all the background to these questions. Thanks!
@Danielle G. super common question and this is going to be VERY specific if your properties are here in Texas. I'll answer these based on your numbers.
1. Finding a HELOC on your primary home (if in Texas) will be SIGNIFICANTLY easier than an investment property (if it's in Texas too). I've called about 200 banks in the DFW area and I have found 4 that would do a HELOC on an investment property. It just harder to find this as an option here than other states. Also, the terms (meaning the interest rate and LTV) will also be better on your primary home than on an investment property.
2. If you live in the property there probably isn't that much benefit to putting in your LLC name. Most that talk about the property in LLC strategy talk about it as being a shelter against your personal liability. Since you already live in the property, it will pretty easy to hold you liable for anything that would occur. Also, placing your personal home in a LLC will make it harder for you to get a cash out loan (if you every needed one).
3. I think the ultimate question here is what are you using the HELOC for? Keep in mind that a HELOC will have an adjustable rate. So it might be hard to calculate your future payments if you were seeking to "buy and hold" properties. You might cash flow now...but may not in 4 or 5 years when rates are different. Also, a HELOC will "mature" into a different loan product in 10 years. Again, long term planning with a HELOC is not very reliable. So if you are flipping homes, you fix, flip, payback your HELOC and do it again. So a HELOC is good to have for that purpose. If you wanted to share what your thought was on your purpose of the HELOC that might help me make some more specific recommendations.
Thanks for your feedback. Yes, both properties are in TX and the HELOC would just be for short term stuff like flips.
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