HELOC on Investment Property

39 Replies

@Aaron Smith   Yeah, I ran into a similar situation with PenFed.  It was all good until they asked that question.

Huntington was good with me.  If you need a direct contact that you can call or e-mail, let me know, happy to provide, they were on top of things.  I only wish they did more than (1).

Regarding the PENFED limit of owning no more than 3 properties - has anyone considered placing one or more of your properties in an LLC to reduce the number of properties that show up under your name in a credit check?

I'm asking because I just got tripped up for a HELOC application with them for owning 4 properties. I'm considering this idea as a way to solve that issue.

Any lending pros have thoughts about whether this would work? 

@Matt P. Funny enough, I have used margin lines against securities to fund purchases, I know many oppose using margin, but I love it. I don't hold it long and use it on short term basis .

Originally posted by @Justin R. :

@Risha Walden I think the desire not to have a mortgage is what's making your life harder than it needs to be here.  A better approach, IMO, is to take the long term mortgage debt and invest the capital in another asset that you can borrow against as a line of credit.  In my case, that other asset is municipal bonds from my state.  Others do it with whole life insurance.  Pretty much all the sophisticated investors I know are doing this in one form or another.  End of the day, it means I'm earning ~3.75% on any extra cash I have lying around in the bank ... plus an arbitrage, depending on the current state of interest rates and the bond market.

In short, it looks like this:

1. Take out a 30y fixed mortgage on the free-and-clear property for, say, $200k.  Assume this is at 5%.

2. Buy $200k of, say, NJ municipal bonds with an effective yield of, say, 4.8%.

3. Open an LOC against the bond portfolio. You should be able to borrow up to 80% of value, with a rate of, say, 4.5%.

4. When you need some capital, write a check from your LOC account.

Beyond the value of flexibility, you also get to write off the mortgage interest expense as a business expense, and the income from the bond portfolio is state and federal tax free.  Lots of variations on the general strategy, including using T-bills, whole life insurance, and other assets, depending on variables in your life.

End of the day, it's essentially always a missed opportunity not to take a FNMA-backed fixed rate mortgage if you can get it.

 thanks for this great info!

can you confirm what you mean by "Take out a 30y fixed mortgage on the free-and-clear property"?  
Are you referring to a cash-out refi?  Im having trouble even finding refi loans on investment properties

can you confirm what you mean by "Take out a 30y fixed mortgage on the free-and-clear property"?  
Are you referring to a cash-out refi?  Im having trouble even finding refi loans on investment properties

Correct.  It shouldn't be difficult to find a lender who will cashout refi the investment property - it's done all the time (at least in high value, liquid urban markets it is).  Pretty much every mortgage broker I've ever talked with can handle it.  Or, if you want to avoid the point in fees from the broker, reach out to banks directly.  For your first one, though, I'd recommend going through a broker.

HELOC on investment property is a different story.

@Travis Brizendine: For an LOC in Omaha, I'd start with Frontier Bank (Cole Groteluschen), Core Bank (Rick Rolley), Pinnacle Bank and Arbor Bank. All of these work with real estate investors.

For the San Diego investors in the conversation, check out Silvergate Bank, Torrey Pines Bank, and Bank of Southern California. Even after you find a great bank, continue to reach out to other bankers. You never know when a policy change at the bank will shut down your access to capital.