I have an itch to tap into a HELOC that I cannot scratch.

5 Replies

What can I say?

I’m itching to get started with this real estate investing thing you guys keep talking about.

A family member overheard me talking about investing in real estate with little to no money down. They expressed a good deal of interest in some of the investment strategies I was talking about, mainly the powerful and wise vehicle that the Home Equity Line of Credit Can be. I know that they have a good amount of equity tied to their property after they shared their purchasing price with me.

According to the Zestimate I pulled on Zillow, there could be over 100k in equity on the property. I understand the Zestimate can be and most likely is a generous estimation, regardless of the fact, there is enough equity tied into the property to be more than helpful.

But the plot thickens.

Since owning the property they have made several of upgrades to the house. HVAC, roof, bathroom remodels, square footage additions, etc.

Sounds great right? And it is.

Except all of the additions and upgrades to the house were done without any permits.

With all things considered, I am concerned and curious that if we were to proceed with pulling a HELOC, would the assessor sent by the bank ring a bell when they see that the house has had upgrades done without any legal permits?

The last thing I would want to happen is that I promise a family member a good return on their investment and then end up in a situation where they have to tear down a part of their residence because the assessor dinged them for having made additions to the house without the legal permits in place.

So, BiggerPockets......

Has anyone found themselves in a similar situation?

Does the assessor have any connection or legal responsibility to report un-permitted additions to the city?

Should I walk away and refocus my efforts in raising private capital elsewhere?



Any bit of input helps.

Thank you guys for fostering a community where these sorts of questions can be asked.

Not sure I would risk my home by getting a heloc.  Also heloc interest is no longer deductible.  I certainly would not risk a family members home.  

HELOC interest is deductible if used for investment purposes. The appraiser from the lender has no interest in reporting anything to the city or county. Their only charge in life is to value the property based on the as is condition of the home as compared to 3-6 comparable's for the lender that hired them to do that job. That's it, nothing more.

HELOC's are powerful tools in investing when used correctly. I think you are on the right path, however you have to have an airtight agreement with that family member that does everything in your power to assure the HELOC is always paid back via monthly payments and also paying the full debt off. If used properly, you can use it to cover the down payments and closing costs of your flips and once you refinance the flip or sell it, pay the HELOC back and then rinse and repeat.

Originally posted by @Fred Cannon :

Not sure I would risk my home by getting a heloc.  Also heloc interest is no longer deductible.  I certainly would not risk a family members home.  

Horrible advice. Interest on a heloc is tax deductible for investments.

Most financial institutions will not do a full appraisal for a heloc. They will typically do a drive by appraisal unless you request to pay for a full appraisal to take advantage of interior upgrades. Most of the time that is not necessary. 

I use my heloc for short term financing for flips. I would not use it for long term financing. Also, make sure you understand the full terms of the loan.

@Kevin Romines Thanks for the helpful response. "rinse and repeat" is the plan I have in mind going forward with this route. At the moment I am simply interested in opening the HELOC and securing that private capital on paper. I understand that opening the HELOC itself doesn't commit neither party into fulfilling the monthly payments until a purchase is actually made. But having the prescience of how much joined capital I have raised, it'll help me redirect my focus towards markets where my capital will go farther. Buying in cash and refinancing into an LTV pay out, using that to repay the HELOC, rinse and repeat is the perfect way to put it.

Thanks a lot.

@Craig Jeppesen Thanks Craig, I appreciate you taking the time to share that piece of knowledge with me. It's extremely helpful getting feedback from folks with personal experience utilizing HELOC's.

Using the credit line for short term financing is the plan. It’s simply some of the cheapest money to borrow out there. As long as I analyze my numbers correctly, I see very little downside to this investing vehicle if utilized responsibly and correctly.

Numbers don’t lie, if the numbers make sense and if the numbers work, we can simply replace all doubt and speculation with the assurance of math. Thanks again for the sound financial advice.