HELOC on rental property ?

7 Replies

About to purchase a property that I will use for rental. Property has a value of $137K and only 46K is owed.

  • 1) I was thinking to pay off the $46k, then get a line of credit and reimburse my cash from the line of credit, then have the rest of line of credit in case I need to use it at later date.
  • 2) Or do a quick claim deed, and then take out a line of credit. However if I did it this way, the due on sale clause could kick in, since I will be taking out a second (seller is ok with keeping existing mortgage in place, which will still be in their name)
  • Also I want the property in my business name and not my personal, not sure if that will affect applying for a HELOC. A lender friend of mine told me to buy the property cash and in seven days she could get me about 90K loan on property. But I don't want a loan that I am paying on, even if I am not using the funds. With HELOC I only pay on funds that I use.

Anyone have any suggestions? Usually I just buy and sell, I want to keep this one, but want my cash back out, with access to a line of credit. Just not sure the best way to structure deal.

Whether the prpperty is in your personal name or a business will definitely affect your HELOC options. Call some of your local banks and ask about their personal rentals vs commercial HELOC products. Good luck!

@Alex S. if you are planning to keep the property the right strategy is to do a cash out refinance into a fixed rate loan. Preferably a 30 year fixed rate loan. Fixed rate loans will allow you to forecast your cash flow. The rate will also be lower. AND you can get more cash out of the property as well. That would be my firm recommendation and this is reinforced pretty well with the BRRRR method too. Let me know if you have any questions on this. Thanks!

@Alex S. - I came across your post because I am sort of in the same position. I have a property also valued ~ 137K in NW Indiana that I just paid off in June. I was interested in getting a HELOC to finance another investment property and via this forum learned of a few lenders that do a HELOC on a rental property as most banks will not touch this. In August I started the application process with PenFed Credit Union. Approval was pretty quick, two maybe three weeks. I was only requesting 50K so I was hoping that a quick drive-by appraisal was all that was needed but that needed to do a full appraisal so I dropped the application as I didn't want to bother what were very good tenants. Key word - "were". They were on a month-to-month and moving out now. Soooooo long story I'm pondering once I'm done renevating and getting it ready to rent again re-applying for the HELOC because of its flexability. The HEL is also an option and more banks will do that. I have close to the 20% down payment for the next house so maybe just a conventional loan might be the right option?? Maybe we just need to weigh the pros and cons of each method of finance but it's good to have a forum like this to learn about what others have done.

@Ronald Trepton Centier does residential and commercial HEL and HELOC. The residential one was cheaper but reports to your personal credit. The appraisal took maybe an hour. @Alex S. form looking into both options HEL and HELOC seems like on an investment property they will approve up to 70% of the loan value less any outstanding mortgages, so don't feel obligated to pay the house off 1st. 

@Deana Johnson thank you for your reply. Do you know if Centier will do a HELOC on investment property? The banks I have spoken with will only do a HELOC on a primary residence. That's when I turned to BP here and learned about some credit unions like PenFed that will do a line of credit on investment property.

Thanks to all for responding and advice. Like Ronald I found out that PenFed does offer a line of credit on investment property. However so far they are the only ones that I have found, but I must admit I have not checked with too many other as of yet.

@Ronald Trepton and @Alex S. if you are still looking for a Line of Credit on an investment property a small, local lender will be your HIGHEST probability of success. The unfortunate thing here is that investment properties foreclose at a higher rate than primary homes so many banks just don't want the exposure to this. But it is 100% possible to find but you have to put in the time or at least know someone that ALREADY has the connection. Here's my 3 suggestions:

  1. Post in the Bigger Pockets STATE forum that you are looking in. There are usually some good, local investors that monitor those forums. Maybe they already have a suggestion or recommendation for you? Certainly try there.
  2. Visit your local REI groups. There are many groups that meet across the country. Some post here on Bigger Pockets. Many post on meetup.com. Networking is always a great practice and you never know who you might meet there and what good information they have to share. Would certainly recommend visiting if one is close to you.
  3. Calling - and then there's this option. Which is what I had to do. I had to call about 200 lenders (no exaggeration) to learn of 4 lenders who did this and I have some tips. First, when calling banks target the smallest most community based banks you can first. If you have never heard of them, and they have one location - that's a good candidate. No big, national, publicly traded banks will do this loan type. Second, try to ask for "LINES OF CREDIT" instead of "HELOC". I know it sounds like I'm splitting hairs but some banks write HELOCs in their residential department....which won't write Investment Properties. And that residential department will often not speak to the commercial department. So they'll just say "sorry, we don't do it"....not even knowing that they really do! So if you ask for a "line of credit on an investment property" that should get you to the COMMERCIAL division. That's the section of the bank we want. Now, most of these smaller banks may only have 12 employees or so. So don't get frustrated if they don't return your call or aren't in the office. Just call back and be friendly. Maybe play dumb a little "I don't know if I'm in the right place..." "I'm sorry to disturb you, you may not be the right person for this....", etc. Maybe someone can get you to the right person. Again, be prepared to call A LOT

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