HELOC Against Rental Property

49 Replies

Hello,

This is my first post here and I would like to say thanks in advance for any insight and advice.

Here's my situation:

I have two rental properties that I own free and clear. I've been building up some cash to put down on a third property and my plan has always been to borrow against one of the other properties to get that next property. I only need to borrow $35K but I've shopped around and unfortunately the closing costs on a cash out refi are very high when taken as a percentage of that $35K. Even though interest rates are great, I'd be paying over 8% for financing when closing costs are factored in. That obviously makes this plan much less attractive. The ideal option would be a HELOC (no closing costs) but it seems like banks quit doing HELOCS against investment properties after the financial crisis of 2008. I do have equity in my primary residence but not enough to get $35K.

The way I see it I have four options:

1.) Suck it up and do the cash out refi, and be out the $3K+ in closing costs.
2.) Lie and claim that the rental property is my primary residence.
3.) Wait until I have enough cash to have to borrow for this next property. (That would take me about 9 more months.)
4.) Look harder for a bank or lender who will do a HELOC on an investment property. I haven't tried any small local banks or credit unions, or any large online lenders like Lending Tree, etc. I have great credit, cash in the bank, a healthy income, and two properties free and clear...surely some bank would see that this is a no-lose deal for them.

So what do you guys think? Has anyone had any luck doing a HELOC against a rental property? Any suggestions? Any worthwhile options I'm overlooking? I don't really want to wait the 9 months because I know I can get significant positive cash flow right now, and don't want to miss 9 months of that.

Thanks again for any input.

You should be able to get a local lender to give you a LOC using one of your free and clear properties as collateral. You may want to look into putting your cash into that bank or credit union (they may require you to do so) in order to help your cause.

Ben There we could take you more seriously if your were to use a real name.

I see you say you are in Ft. Worth. I am in Joshua, just south of you. There are several of us in your neighborhood. Welcome to BP.

People here might not like this, but oh well.

After almost 14 years of investing, I'm currently down to 8 owner occ's. I'm usually in a hurry while signing docs. Most I'm used to, but, now looking back, I've had over 12 owner occ's at one time.
I didn't mean to do it, sorta.
But today, I think I still have 8 at this time.
It's not a bad thing, besides, you get better terms anyway...

I'm sure I'm out of place saying this.

If you can't do the heloc, I'd go in the above direction...

Brian - Thanks, I've had a couple of people tell me that and I will put it to the test this week. I hope you guys are right.

Greg "B." - Try to think of me as Ben "D." If that doesn't help, just know that "Ben There" was the runner up to my first choice of "Chester Copperpot". (And thank you for the welcome!)

Hi Robert - I'm going to sound like a real greenhorn asking this...but what is an occ?

Owner occ, aka OO, means owner occupied. That means when you get the loan you claim (legally swear, actually) you're going to live in it. If you get an OO loan when you have no intention of living in the property you're committing loan fraud. Good luck to you if you choose to go that route.

BiggerPockets rules do require use of your real name. You can use the privacy options to hide your last name.

Getting an OO when you're not going to live in the property is a complete joke and makes it hard for people who are actually going to live in properties, get them. It's one of the reasons real estate investors get a bad name. I highly suggest against it, unless of course lying is apart of your moral code.

Originally posted by Ben Davis:
... The ideal option would be a HELOC (no closing costs) but it seems like banks quit doing HELOCS against investment properties after the financial crisis of 2008. ...

In 2008, I was able to obtain a HELOC on one of my investment properties from Wachovia (now Wells Fargo) - so they didn't quit, they just made things harder. Full doc, lower CLTV (70%) - but it got done.

Originally posted by Steve Babiak:
Originally posted by Ben Davis:
... The ideal option would be a HELOC (no closing costs) but it seems like banks quit doing HELOCS against investment properties after the financial crisis of 2008. ...

In 2008, I was able to obtain a HELOC on one of my investment properties from Wachovia (now Wells Fargo) - so they didn't quit, they just made things harder. Full doc, lower CLTV (70%) - but it got done.

Could you do that same thing now that it is wells? That's the real question.

Originally posted by Steve Babiak:
Originally posted by Ben Davis:
... The ideal option would be a HELOC (no closing costs) but it seems like banks quit doing HELOCS against investment properties after the financial crisis of 2008. ...

In 2008, I was able to obtain a HELOC on one of my investment properties from Wachovia (now Wells Fargo) - so they didn't quit, they just made things harder. Full doc, lower CLTV (70%) - but it got done.

I know of two investors who have gotten lines against investment properties fairly recently here - both from community banks. I would try them first along with credit unions - especially if you have a relationship. I've also heard that TD Bank and Fifth Third Bank may offer them, but don't have first hand knowledge as they both lend in limited states (WA not included).

Thanks to everyone for the replies. I did some leg (phone) work last week and found a lender that will do a HELOC on an investement property: Wells Fargo.

This was great news to me as it will save me $3K+ in closing costs and allow me to acquire my next property more seamlessly.

When I talked to Wells about 6 months ago about a LOC for an LLC she said it would cost a point of the limit.

Credit union would do with no appraisal or fees.

Originally posted by Robert Lett:
People here might not like this, but oh well.

After almost 14 years of investing, I'm currently down to 8 owner occ's. I'm usually in a hurry while signing docs. Most I'm used to, but, now looking back, I've had over 12 owner occ's at one time.
I didn't mean to do it, sorta.
But today, I think I still have 8 at this time.
It's not a bad thing, besides, you get better terms anyway...

I'm sure I'm out of place saying this.

If you can't do the heloc, I'd go in the above direction...

says a lot about your character.... i strongly advise people NOT follow this 'direction'

Originally posted by Ben Davis:
Thanks to everyone for the replies. I did some leg (phone) work last week and found a lender that will do a HELOC on an investement property: Wells Fargo.

This was great news to me as it will save me $3K+ in closing costs and allow me to acquire my next property more seamlessly.

Good luck! wells has been a huge pain in my side.

Keep in mind the negatives with a HELOC:

* The untapped portion of the line can be revoked at any time for several reasons, such as your credit score taking a dive because you put a lot on a credit card one month (the banks regularly do score inquiries on their LOC borrowers), or the bank's valuation computer says your property value has fallen.

* The note rate has no cap, it will rise with Prime.

Sometimes the better loan is an ARM through a low-cost local lender. The rate is typically capped at 6% above the initial note rate (with the rate resetting annually to 1 year CMT + 3.25%, or something about like that). I just got a 3yr ARM, 5.25% for 3 years, then floats at 1yr CMT+3.25%, 30year term/amort, lifetime rate maximum of 11.25%, fees around $1k).

Local lenders will often do these for relatively low closing costs ($1k or less); not as low as HELOC fees, but at least you can define the worst-case rate scenario on the front end. If your local lenders are all gouging on fees on ARMs (you say you've called around, but were you asking about *portfolio* loans?), then maybe the HELOC is the way to go.

Originally posted by Ben D.:
Hello,

This is my first post here and I would like to say thanks in advance for any insight and advice.

Here's my situation:

I have two rental properties that I own free and clear. I've been building up some cash to put down on a third property and my plan has always been to borrow against one of the other properties to get that next property. I only need to borrow $35K but I've shopped around and unfortunately the closing costs on a cash out refi are very high when taken as a percentage of that $35K. Even though interest rates are great, I'd be paying over 8% for financing when closing costs are factored in. That obviously makes this plan much less attractive. The ideal option would be a HELOC (no closing costs) but it seems like banks quit doing HELOCS against investment properties after the financial crisis of 2008. I do have equity in my primary residence but not enough to get $35K.

The way I see it I have four options:

1.) Suck it up and do the cash out refi, and be out the $3K+ in closing costs.
2.) Lie and claim that the rental property is my primary residence.
3.) Wait until I have enough cash to have to borrow for this next property. (That would take me about 9 more months.)
4.) Look harder for a bank or lender who will do a HELOC on an investment property. I haven't tried any small local banks or credit unions, or any large online lenders like Lending Tree, etc. I have great credit, cash in the bank, a healthy income, and two properties free and clear...surely some bank would see that this is a no-lose deal for them.

So what do you guys think? Has anyone had any luck doing a HELOC against a rental property? Any suggestions? Any worthwhile options I'm overlooking? I don't really want to wait the 9 months because I know I can get significant positive cash flow right now, and don't want to miss 9 months of that.

Thanks again for any input.

Ben did you end up getting this through wells? Very eager to hear your response!

Hi Joe -

Yes! I did get my HELOC through Wells. The process was quick (under 2 weeks) and they were great to work with. I got the full amount I was wanting and I am currently under contract on my next rental property. Zero closing costs or fees. There is a $75 annual fee but it is waived the first year. However, if I close the account in less than five years there is a $500 penalty. Interest rate is okay..5.3%...but I'm not concerned as I will pay balance back quickly. They gave me 65% of the appraised value that I gave them (weird). And yes, they did an appraisal. I think they always appraise very high on these things because they want you to borrow alot of money.

Originally posted by Ben D.:
Hi Joe -

Yes! I did get my HELOC through Wells. The process was quick (under 2 weeks) and they were great to work with. I got the full amount I was wanting and I am currently under contract on my next rental property. Zero closing costs or fees. There is a $75 annual fee but it is waived the first year. However, if I close the account in less than five years there is a $500 penalty. Interest rate is okay..5.3%...but I'm not concerned as I will pay balance back quickly. They gave me 65% of the appraised value that I gave them (weird). And yes, they did an appraisal. I think they always appraise very high on these things because they want you to borrow alot of money.

That's fantastic! Glad to hear it!

I suspect that Wells Fargo was really doing the LOC mostly based on your credit and income, and not the collateral. They will commonly do up to $50k unsecured LOCs, so perhaps you have a modified version of one of these. A good way to go for a low hassle LOC.

Thank you @Joe Delia for following up with @Ben D. on this topic. I too was curious which banks offer HELOCS on rentals. This post is over 3 years old now. Are there any other banks offering decent rates on rentals now? Thanks guys, Rick 

Originally posted by @Rick Snow :

Thank you @Joe Delia for following up with @Ben D. on this topic. I too was curious which banks offer HELOCS on rentals. This post is over 3 years old now. Are there any other banks offering decent rates on rentals now? Thanks guys, Rick 

 I'd also like to know! BUMP

@Rick Snow @Devan Woodruff Hi Guys, I just spoke to a guy in So Cal (where I live) and yep, Wells Fargo is still doing HELOCs on Investment properties.  PM me if you want the guy's contact @ Wells Fargo.  Full disclosure: I still haven't decided if I'm going to get it or not. 

@benD May I ask what were the total value of those properties? Or the value of the property you got the LOC on?

Hi, I'm new to BP. I found this thread while looking for info on banks that will give HELOCs on rental property. I see that this original post is pretty old, but that Wells Fargo was a possibility recently. Does anyone know about which banks or credit unions will do it in PA or OH? Like Ben D., I have two rentals free and clear that I'd like to use for another. Does anyone know if PNC, TDBank or NavyFederal give HELOCs on rental property?

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