Heloc on Heloc on Heloc forever?

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Heloc on Heloc on Heloc forever?

Michael M.
Investor · Bronx, NY · Member since 2016 · 78 posts · 40 votes

I just took out a HELOC to use as a down payment an investment property. My monthly payments will be low (interest only for 10 year draw period), so shouldn't really affect my debt to income ratio much.

Once I buy the investment property, can I immediately take out a HELOC on the investment home? Since I am putting down 25% and the house will appraise for more than I bought it for, the numbers should work.

And then can I do it again with the house I buy using that HELOC as downpayment? And keep doing this forever and continue to buy more properties? Or am I missing something?

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Mike Dorneman
Rental Property Investor · Drums, PA · Member since 2017 · 345 posts · 365 votes
8y
@Michael M. Simple answer is Yes. You will need to find a bank that will not require you to “season” the property though. Meaning, many banks will take the purchase price instead of the appraisal price within the first year of purchase. They do so to avoid lending to customers that want to do exactly what you are doing 😁. Don’t be discouraged though. I found a small local bank in my community that is very investor friendly. They don’t require me to season the property and they’ll loan based off the purchase price + renovation costs. They’ll loan 80% Bottom line is you can absolutely do this, you will just need to find the right bank. One other thing to note, these loans are commercial, no residential personal. The guidelines for commercial are much more Investor friendly.
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  • Michael M.
    OP
    Investor · Bronx, NY · Member since 2016 · 78 posts · 40 votes
    5y

    @Kerry Baird Thanks, this is a great list!  Where states are listed, are these the only areas that these banks lend, or is it just where the bank is located?


    I am in contact with a few small lenders and will post updates as I hear back re: HELOC on investment property.

    0Reply
  • Kerry BairdPro Member
    Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
    5y

    @Michael M., good question. When I first started looking for investment HELOCs there were many comments that they did not exist. I started to put the list together, and there is not always a lot of information, just that at one point someone posted that they got a HELOC on an investment property from that lender.

    Some do lend in a wide part of the country (say TD Bank or USBank, and even the bigger credit unions like PenFed). Texas is a hard nut to crack, because of their homestead protections.  As for NY, you may try Trustco Bank for investment property. It is best, I think, to contact the small local (to the property) lenders and see what their current appetite is.  Also, each lender can make its own rules regarding HELOCs so there is not a standardized prescription as to what to expect.  Some are interest only for so many years and then adjust, some have repayment periods right from the start.

    Expect that appetite for lending to change: when I see a sign outside a bank/credit union saying, "Money to lend" that's a good one to visit with; whereas, when they say "Paying high interest on savings accounts" then they are wanting more funds on deposit and not so much focus on the lending side.

    2Reply
  • Daniel C.Pro Member
    Rental Property Investor · New York, NY · Member since 2020 · 12 posts · 7 votes
    4y


    @Kerry Baird Great list, thank you. Looking for HELOCs in NY as well. 

    1Reply
  • Stephen Dougherty
    Member since 2021 · 14 posts · 17 votes
    4y

    Keep in mind your debt to income ratio will start to be impacted at some point so you might start to run out of runway. Also, HELOCs can be called if property values decrease as mine did in 2008. Look into the details of the HELOC terms to see if/when the HELOC can be called.

    4Reply
  • Kerry BairdPro Member
    Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
    4y

    @Stephen Dougherty, that is wisdom, to be sure.  HELOCs are best as a short term strategy, imho, similar to a bridge loan...but at much lower interest than hard money.

    0Reply
  • Chad Hutchens
    Member since 2022 · 4 posts · 3 votes
    4y
    Quote from @Kerry Baird:

    @Stephen Dougherty, that is wisdom, to be sure.  HELOCs are best as a short term strategy, imho, similar to a bridge loan...but at much lower interest than hard money.

     This thread is a great find and very informative, thanks group!  @Michael M. Any update pros & cons from your HELOC strategy throughout this thread? I am contemplating on utilizing my HELOC but weighing the options of buy a property in full and then mortgage that property and turn around a pay back off my HELOC. The other option was to JUST use the HELOC as a 25% DP and update paint/kitchen etc. (force appreciation) and THEN cash out refi and pay off my HELOC. Property would be long term rental. Thanks for any input!

    1Reply
  • Stephen Massinello
    Real Estate Agent · Long Island, NY · Member since 2022 · 15 posts · 4 votes
    4y

    Great Thread. 

    @Kerry Baird thanks for the list, I just had a conversation with PenFed, very responsive and easy to get a hold of. This is for my primary home to do renovations and to use as a down payment for a rental. I will be reaching out to TD Bank, US Bank and Trustco, I want to know how each of them work. Any other HELOC suggestions for primary homes, please share. I learned Chase and Wells Fargo pause HELOCS because of the pandemic.

    Any help is much appreciated. 


    1Reply
  • Lindsay Baker
    Smithfield, RI · Member since 2022 · 6 posts · 3 votes
    4y
    Quote from @Kerry Baird:

    I have gotten a HELOC (or pursued one and chose another lender) on investment property with these lenders. There may be others, credit unions in particular, that will also do them on investment property.

    Trustco Bank, US Bank, TD Bank and PenFed Credit Union.


    Hi Kerry- my husband and I have a HELOC and are eager to make our first deal on a rental property. The thing that is catching us up is after paying just the interest over time, how do you then pay back to loan when it reaches the 10 year mark? Refi? We would like to purchase and hold as you do. We are newbies and appreciate any input.

    0Reply
  • Kerry BairdPro Member
    Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
    4y

    @Lindsay Baker
    Most of these have a 10 year draw period followed by a repayment period. In my situation, I did renovation and then refinanced into a 30 year mortgage, and paid off the underlying HELOC. Cash flow ought to increase over time, too, and can be funneled into paying off the line.

    0Reply
  • Lindsay Baker
    Smithfield, RI · Member since 2022 · 6 posts · 3 votes
    4y

    Hi Kerry, Thanks so much for your response! Yes ours in 10 year followed by repayment. We are having to go the BRRRs route because of the market right now. With the HELOC interest payment and high home prices everywhere (we are in RI) its hard to find a property to cash flow! Its even hard to find a decent deal to do a BRRR with right now. Its a bit disheartening but We are determined though to get our first property! Thank you again!

    1Reply
  • Kerry BairdPro Member
    Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
    4y

    @Lindsay Baker, I have a very small area (sometimes called a "farm") where I look for houses.  I have hand written letters to owners with some success.  That helps me find off market deals.  I have gotten owner financing regularly, because I ask.  I am currently paying 6% interest only for a few (3 to 5 years).  That helps me cash flow right from the start, and then I can refinance later.  I also don't have origination fees or expensive closing costs when I owner finance.  

    2Reply
  • Lindsay Baker
    Smithfield, RI · Member since 2022 · 6 posts · 3 votes
    4y

    Thanks so much for the input! So with the interest only seller financing- they are allowing you to pay only the interest, and then you pay the principle when you refinance in 3-5 years? So it seems the advantage for the seller is to receive the interest payments in addition to the full cost of the home when you refi at the end of the decided amount of time? 

    1Reply
  • Kecia Troy
    Member since 2021 · 1 post · 0 votes
    4y
    Quote from @Don Konipol:

    @Michael M.

    HELOC on investment property are only offered by three lending institutions, and only in some states. And the max LTV is 65 or 70%, and interest rates about 3% higher than primary residence Helocs.


     Don -- Which Lending Institutions offer HELOCs on Investment properties?

    0Reply
  • Ladd Brunner
    Rental Property Investor · Twain Harte, CA · Member since 2019 · 20 posts · 20 votes
    4y

    @Kecia Troy Penfed is often listed on this forum and we are closing a heloc on a non owner occupied investment property next week. Our loan officer just informed me PenFed will no longer be offering this product as of 4/8/22 until further notice.

    1Reply
  • Patrick McGinn
    Investor · Sacramento, CA · Member since 2019 · 3 posts · 2 votes
    4y

    @Sujoy Ganguly

    I called about 9 banks and credit unions looking for 80LTV and a promotion for lower interest only payment for 1 year. I found that at Umpqua bank.

    2Reply
  • Sujoy Ganguly
    Member since 2019 · 8 posts · 2 votes
    4y

    @Patrick McGinn Thank you Patrick! :)

    I will follow up with Umpqua. I found what I was looking for at PenFed. A HELOC that allows me to execute paycheck parking / velocity banking.

    0Reply
  • Lisette Gonzalez
    Rental Property Investor · Reno, NV · Member since 2020 · 3 posts · 2 votes
    4y
    Quote from @Jessica Jay-Maleski:

    Does anyone have a recommendation for a HELOC lender who doesn't require seasoning of the property? I am located in the Phoenix metro area (if anyone has recommendations for small local banks or CUs I should visit) but I would also welcome recommendations for larger institutions.

    Thank you so much :)


     Hughes Federal Credit Union

    1Reply
  • Jeremy M.
    Rental Property Investor · Roseville, CA · Member since 2017 · 2 posts · 2 votes
    4y
    Quote from @Patrick McGinn:

    @Sujoy Ganguly

    I called about 9 banks and credit unions looking for 80LTV and a promotion for lower interest only payment for 1 year. I found that at Umpqua bank.


     Golden1 and Fremont Bank for us Sacramento Valley Investors...

    1Reply
  • Kalo (Kyle) Atanasoff
    Rental Property Investor · Los Angeles, CA · Member since 2014 · 259 posts · 55 votes
    4y
    Quote from @Don Konipol:

    @Michael M.

    HELOC on investment property are only offered by three lending institutions, and only in some states. And the max LTV is 65 or 70%, and interest rates about 3% higher than primary residence Helocs.

    @Don Konipol - what are the three lenders that you know who do HELOC on investment properties? Would you please share?

    0Reply
  • Zach LemasterBusiness Member
    Rental Property Investor · Denver, CO · Member since 2015 · 2k+ posts · 3k+ votes
    4y

    The stacking effect!  This is a great thread for someone to see how to scale over time!

    [email protected]800-311-6781Podcast Guest on Show How to Get 10%+ Off Your Next Real Estate Deal Right Now
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    7Reply
  • Sean Britt
    Denton, TX · Member since 2016 · 9 posts · 2 votes
    4y
    Quote from @Don Konipol:

    @Michael M.

    HELOC on investment property are only offered by three lending institutions, and only in some states. And the max LTV is 65 or 70%, and interest rates about 3% higher than primary residence Helocs.


     Do you know of any in Texas? I am looking for this very thing. 

    0Reply
  • Jonathan Stevens
    Rental Property Investor · Attleboro, MA · Member since 2021 · 81 posts · 56 votes
    4y

    I am also aiming at doing a HELOC for a down payment on seller finance deals. Looking for options in Massachusetts.

    0Reply
  • Joe BergPro Member
    Investor · Minneapolis, MN · Member since 2017 · 1 post · 0 votes
    4y

    FYI-I contacted PENFED as I have used them in the past. They confirmed today that they no longer do HELOC on non-primary residences.

    0Reply
  • Johnny Lau
    Investor · San Jose, CA · Member since 2015 · 89 posts · 46 votes
    4y
    Quote from @Michael M.:

    I just took out a HELOC to use as a down payment an investment property. My monthly payments will be low (interest only for 10 year draw period), so shouldn't really affect my debt to income ratio much.

    Once I buy the investment property, can I immediately take out a HELOC on the investment home? Since I am putting down 25% and the house will appraise for more than I bought it for, the numbers should work.

    And then can I do it again with the house I buy using that HELOC as downpayment? And keep doing this forever and continue to buy more properties? Or am I missing something?

     make sure that you have a good exit stratgy, several options best....HELOCs are a great way to set yourself up to crash and burn if done wrong or just having plain bad luck

    0Reply
  • Aaron Raymond
    Member since 2019 · 7 posts · 1 vote
    4y

    @Kerry Baird

    Thank you for the list. I'm searching for a lender now that'll do HELOCs. This gives me a place to start.

    1Reply
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