possible private investing? Using Heloc?

4 Replies

Hello!!

I have a family member who paid cash for a house in Miami for 70k. The house is now worth about 250K.

I've never owned a home before and I'm trying to figure out the best way to use the equity in the home. This family member in particular is interested in real estate.

I was wondering if doing a HELOC would be the best way to use the equity in the home to purchase an investment propriety. (thinking more of Flips and BRRR).

These questions might sound silly but please bear with me as I'm trying to have all my ducks in the row.

I know a HELOC is about 80% of the value and they will have to show proof of income that they will be able to cover payments to qualify.

Since the house was purchased cash, does that mean they will have to go to a bank to get a HELOC? Will they now have a mortgage payment and then any interest payments for any money used for the HELOC?

If there is more then one person name on the house will both have to show income to pay the interest payments?

Has anyone invested with HELOC willing to share their experience?

Thank you!!

Neph

@Nephtalie Pierre Sounds like you have 3 major options to get access to the equity that is in the home. 1. You can refinance the house to a new 15, 20, or 30 year mortgage (your choice). Most likely you would be able to take out 70-80% of the equity depending on the borrow's income and credit. Doing a refinance would cause you to have a mortgage payment every month for the next 15,20, or 30 years depending on what you did but you would be paying a low interest rate. This is most likely your best option if you plan on using the money to buy long term buy and hold properties. 2. You can get a HELOC on the property. This is a line of credit with the property as the collateral. Most banks will lend up to 80% of the value of the house. There will be some up front costs, appraisal, bank fee, survey etc, but when you are done you will have a "checking account" with 80% of the value that you can use. Normally banks like to see this revolving (being used and then paid back) within a year so this is probably not a good idea to get a buy and property with. The nice part about a HELOC is that if you don't use the money, you don't pay interest on it. If you use 10k you only pay interest on 10k for the number of days that the money is not in the checking account. It is ideal for flips and BRRRRR strategy 3. Last option is to sell the property. I don't think this is a good option.

For Options 1 and 2, you will have to go to a bank or local credit union. There will be paperwork and proof of income etc involved. You most likely will have to give tax records. If there are more than one person on the deed of the property, the combined income is normally used by the bank to determine if you make enough money to refi or get a HELOC. If one person does not work and the other makes good money then it would be the same as if both work and make half the money.

I currently am in the process of getting a HELOC on a property I own in Texas. I plan on using the HELOC for future flip projects. Let me know if you have any other questions. Also please note that Florida may have different rules than here in TX so keep that in mind.

It can be hard to get a HELOC on investment property, simply because not a lot of people do it. There's a lot of wrong info out there and you'll likely get push back if you don't go somewhere familiar with this process.

With that said, PenFed is a easy online option that does this frequently. https://www.penfed.org/home-equity-center/home-equ...

A condensed answer though:
Cash Out Refi, you basically sell the house to yourself. You'll get cash back (Not taxed since loan). You'll have closing costs like any other loan....

HELOC similar, think of it as a credit card backed by your house. You can turn it into a longer term loan for better rate and it acts like any other mortgage.

1031 Exchange. Sell the house, find a replacement and purchase it. You can defer taxes, easiest way to think of this is trading up.

Originally posted by @Nephtalie Pierre :

Hello!!

I have a family member who paid cash for a house in Miami for 70k. The house is now worth about 250K.

I've never owned a home before and I'm trying to figure out the best way to use the equity in the home. This family member in particular is interested in real estate.

I was wondering if doing a HELOC would be the best way to use the equity in the home to purchase an investment propriety. (thinking more of Flips and BRRR).

These questions might sound silly but please bear with me as I'm trying to have all my ducks in the row.

I know a HELOC is about 80% of the value and they will have to show proof of income that they will be able to cover payments to qualify.

Since the house was purchased cash, does that mean they will have to go to a bank to get a HELOC? Will they now have a mortgage payment and then any interest payments for any money used for the HELOC?

If there is more then one person name on the house will both have to show income to pay the interest payments?

Has anyone invested with HELOC willing to share their experience?

Thank you!!

Neph

If someone else is on the deed they both have to sign the aplication for HELOC and both credit histories are going to be checked. But only one person can be on the loan if his/her income is enough for HELOC payment or if other person doesn't have a job.

@Ryan Detig

Thank you for your detailed response to the process of getting a HELOC. Best wishes on the process you're going through with the HELOC :). I will call a bank to see if their process is a little different. Appreciate the advice.

@Matt K.

Thank you for that link I will definitely look into that.  The first two options look like they could be the best choice. Will have to weigh the pros and cons. I know that of both. Thank you for your response!

@Lana Lee   

Thank you for noting that. I will be sure to keep that in mind

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