HELOC, HELOAN or something else for personal Home renovation

Miami, Florida
Personal Finance
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HELOC, HELOAN or something else for personal Home renovation

Agustin Conti
Member since 2021 · 79 posts · 25 votes

I have 2 investment properties that are doing really well and give me some cash flow (on top of paying both mortgages). Before thinking of going for the 3rd one, which would be great if it goes as well as these two, I need to fix my own house (personal) . Long overdue little things and not so little things. I am exploring the possibility of not only fixing things but doing a renovation to bring an old half bath into a fully functional bath, renovate the entrance and foyer among other things and possibly even an addition to the house. Somewhere around $100k to $150k ballpark expense. Besides making our house prettier and more comfortable, something we can enjoy while we are here after the renovation, all these things will certainly add a lot of value to the house. We estimate 3 to 4 times the amount of the loan by the time we plan to sell the house in about 5 to 6 years. I still owe about $238k on the house (I am paying around $2k per month including escrow) and the bank says it appraise for $850-900k so plenty of equity to borrow. After doing a quick search..I get numbers around 9 to 10% interest for these HELOC loans that I found insane. Any ideas or recommendations as to where to go for financing this kind of project.

Regards,

Agustin

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Corby GoadeBusiness Member
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
2y

HELOC is almost always the best option. Rates are variable, so it's very likely that those will come down soon. Also, they don't cost anything to close and you don't pay a penny unless you use them. There's no cheaper product- don't let the rates throw you, you'll save thousands with a HELOC.

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  • Kristine Ann
    Investor · WNY/CNY/Adirondacks, New York State · Member since 2024 · 151 posts · 133 votes
    2y

    Interest rates are pretty high right now.  Normally the credit unions are the place to go for the best heloc rates.  Usually helocs are adjustable rates, so the rate will come down as the interest rates go down.  

    Remember with a heloc, you only pay interest when and if you've withdrawn the money and once you pay it off you can use it again. I personally like having a heloc. It opens up a lot of possibilities.

    1Reply
  • Agustin Conti
    OP
    Member since 2021 · 79 posts · 25 votes
    2y
    Hi Kristine, yes the high interest rate is what I don't like at all about this. and the fact that is not at locked rate, but as you said in this case it supposed to come down anyways. thanks
    1Reply
  • Josh St LaurentBusiness Member
    Financial Advisor · Stateline, NV · Member since 2023 · 131 posts · 122 votes
    2y

    @Agustin Conti you could always consider a 401k loan if you have that available.  That way you pay the interest back to yourself.  The obvious downfall in my mind is that it's capped at 50k.  Maybe it will help you get some work done and reduce the amount you need to pull from other sources.  Hope this helps

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  • Ray Hage
    Investor · Fort Lauderdale, FL · Member since 2020 · 1k+ posts · 755 votes
    2y

    Unfortunately, you're right about HELOC rates being around 9%. I think for now, I would focus on the major issues of your house that need to be fixed before they worsen. You're not going to find anyone to lend you money to fix up your home directly. If you don't owe a lot on your investment property, you could pulling more equity out of it but that still will probably be around 8% at this time.

    One other option but a bit dangerous. You can get a cash advance on your credit card. From my own experience with Bank of America, it's been great. I was able to take out money with a 4% fee up front and no interest for one year. The danger is that if you don't pay it all off in one year, you are stuck with a 20% interest rate. Also, it will lower your credit score if you borrow a high amount relative to your total credit (it will go back up once you pay it all back of course).

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  • Agustin Conti
    OP
    Member since 2021 · 79 posts · 25 votes
    2y

    Thanks for the ideas folks (401k, cash Advance on CC) but not only I am not comfortable with these options but I would need to borrow more than 50K. The plan I am evaluating is, and this may work well even with a very high HELOC rate, since we need to fix a few things (renovation) to take the opportunity of having a mess in the house and go for a bigger renovation that will include an addition and overall change of the front of the house. This will be around 150k, but down in a 5-6 years this project should help triple (or more) that amount invested when its time to sell the house.

    I would use 50k from selling stock and the rest from the HELOC, starting paying right away, up to 1200 per month or so. The "less" option would be to "just" fix things at around $20-30k then down the road spend about the same when its time to sell the house to make it look the best and not get the extra value that a bigger project would bring and not enjoy a nicer, fixed house until then

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  • Luis Maqueira
    Rental Property Investor · Miami · Member since 2022 · 247 posts · 75 votes
    2y

    ears. I still owe about $238k on the house (I am paying around $2k per month including escrow) and the bank says it appraise for $850-900k so plenty of equity to borrow. After doing a quick search..I get numbers around 9 to 10% interest for these HELOC loans that I found insane. Any ideas or recommendations as to where to go for financing this kind of project."

    Agustin, 

    Heloc is prime plus 1% or 2%,  that is today's rate.  Personally, Heloc is the best loan possible. You are in control you put the rent money in and that money generates  9% compound interest. Tell me a saving account that cand do that for you.

    Boss do more research in company credit fund-capital or Heloc vs Loan math. 

    At the end depends on you, if you don't have cashflow or time of capital that you don't use ... you can't take advantage of Heloc.. 

    Um Abrazo

    Luis M MMpartners

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  • Agustin Conti
    OP
    Member since 2021 · 79 posts · 25 votes
    2y

    "Heloc is prime plus 1% or 2%, that is today's rate. Personally, Heloc

    is the best loan possible. You are in control you put the rent money in

    and that money generates 9% compound interest"

    HI Luis, what is prime and what do you mean rent money? there is no rent involved here..and how it will generate 9% ?

    0Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    2y

    HELOC is almost always the best option. Rates are variable, so it's very likely that those will come down soon. Also, they don't cost anything to close and you don't pay a penny unless you use them. There's no cheaper product- don't let the rates throw you, you'll save thousands with a HELOC.

    1Reply
  • Raymond J. RodriguesBusiness Member
    Lender · Miami, FL · Member since 2017 · 1k+ posts · 797 votes
    2y

    @Agustin Conti, HELOCs are better than personal loans or credit cards. You won't find lower interest rates anywhere else. At the end of the day, the HELOC will you make you money in the end, not lose you money. So what's the big deal?

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  • Agustin Conti
    OP
    Member since 2021 · 79 posts · 25 votes
    2y
    Quote from @Raymond J. Rodrigues:

    @Agustin Conti, HELOCs are better than personal loans or credit cards. You won't find lower interest rates anywhere else. At the end of the day, the HELOC will you make you money in the end, not lose you money. So what's the big deal?

    There is no "big deal" here. a High interest rate doesn't bother me as long as the numbers work for me and I end up making more money which is what the numbers are predicting will most likely happen.
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  • Agustin Conti
    OP
    Member since 2021 · 79 posts · 25 votes
    2y
    Quote from @Corby Goade:

    HELOC is almost always the best option. Rates are variable, so it's very likely that those will come down soon. Also, they don't cost anything to close and you don't pay a penny unless you use them. There's no cheaper product- don't let the rates throw you, you'll save thousands with a HELOC.


    Good point here in having zero cost associated with the loan. If managed wisely (like everything else in life) it can be a great tool to boost growth. Thanks!

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  • Pete M.
    Financial Advisor · Issaquah, WA · Member since 2017 · 241 posts · 141 votes
    2y

    Just to confirm, the HELOC would be against your primary and used to improve the same property--right? If so, that interest could also be tax-deductible. That's the one scenario for HELOC interest deductibility that the TCJA left in!

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  • Agustin Conti
    OP
    Member since 2021 · 79 posts · 25 votes
    2y
    Quote from @Pete M.:

    Just to confirm, the HELOC would be against your primary and used to improve the same property--right? If so, that interest could also be tax-deductible. That's the one scenario for HELOC interest deductibility that the TCJA left in!


     Yes I just realize this..I need to "crunch" the numbers to have an idea of how much I would pay every month..if I take..like $50k every three months 3 times..I could not find an heloc calculator that allows me to calculate precise monthly payments..Any ideas?

    0Reply
  • Pete M.
    Financial Advisor · Issaquah, WA · Member since 2017 · 241 posts · 141 votes
    2y
    Quote from @Agustin Conti:
    Quote from @Pete M.:

    Just to confirm, the HELOC would be against your primary and used to improve the same property--right? If so, that interest could also be tax-deductible. That's the one scenario for HELOC interest deductibility that the TCJA left in!


     Yes I just realize this..I need to "crunch" the numbers to have an idea of how much I would pay every month..if I take..like $50k every three months 3 times..I could not find an heloc calculator that allows me to calculate precise monthly payments..Any ideas?

    Your payment amount will depend on your balance and the interest rate; additionally, whether it's interest-only or amortized (meaning princpal + interest in each payment).  The answers to those will depend on the HELOC terms.  HELOC interest rates are typically variable, meaning the interest rate changes periodically (often monthly), which adds some unpredictability.

    If we assume a $150k balance, though, at 9% interest rate with interest-only payments, then the monthly payment would work out to ($150k balance * 9%) divided by 12 (months) = $1,125 per month as interest.
    1Reply
  • Agustin Conti
    OP
    Member since 2021 · 79 posts · 25 votes
    2y

    yeap..those are the numbers I am seeing..$1125 in monthly interest is not fun...This is like 14k per year in interest alone. Crazy.. I am ok with 1000 to 1200 per month including some principal payment. but not this. This is like around 50k in interest over 5 years, not a minor expense in the whole equation. dang..it is so easy to make money IF you have the money! the more you have the easier it gets and the other way around.

    0Reply
  • Ray Hage
    Investor · Fort Lauderdale, FL · Member since 2020 · 1k+ posts · 755 votes
    2y
    Quote from @Agustin Conti:

    yeap..those are the numbers I am seeing..$1125 in monthly interest is not fun...This is like 14k per year in interest alone. Crazy.. I am ok with 1000 to 1200 per month including some principal payment. but not this. This is like around 50k in interest over 5 years, not a minor expense in the whole equation. dang..it is so easy to make money IF you have the money! the more you have the easier it gets and the other way around.

    That is definitely not worth it! Way too much and you end up basically dealing with a lot of crap with very little gain.
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