How Much would you pull for HELOC in my situation?

Question

I am seeking advice when it comes to pulling out a HELOC on our primary residence. We are looking to purchase our first investment property within 2 years.

Our current value of of single family home is estimated around 620000. Our current LTV ratio is around 30%, we only owe around 189000 of our current mortgage.

Would you pull out the full amount even if you don't plan to use it all? Or would you just pull out what is needed to cover expected costs? 50000 or pull out 200000?

Just looking for take that first step:) Thank you!

Brooke

Doug Smith · Answer

In this age of bots and click-bait questions, I usually make it a practice to avoid piling in on questions from a "1 Post, 0 Votes" contributor that started their profile in the last 10 days, but I'll answer too just in case this is for real. As a lender to investors and an investor myself, you have to ensure overall positive cash flow and enough in reserve to survive a rainy day. Over-leveraging, including using a combo of a HELOC for the downstroke and a DSCR/Bridge Loan that puts you cash-flow negative kills a lot of investors. My advice - think less about "how much should I pull" and more about how positive is your cash flow overall considering all leverage sources and expenses? Do I have enough reserves to survive a rainy day and what is my exit strategy if things don't go to plan? Might I suggest asking "How much would you pull" is the wrong question. I contend better questions to ask yourself are how positive is my overall cash flow and what happens if/when something goes wrong.

Nicholas L. · Answer

@Brooke Robichaud

stepping back from the specific amount to pull - you may know this, but you should only use HELOC funds for something temporary.  if you finance a property entirely - say, a HELOC for the down payment, and a loan for the rest - you will just lose money every month.

hope this helps - happy to dialogue further

Adam Tafel · Answer

No need to pull more from a HELOC than what you need, that’s the beauty of a HELOC vs cash-out refi

Bianca Barcelos · Answer

Brooke, you're in a good position with the HELOC either way. This equity in your primary home is a great asset in moving into an investment property (and eventually a portfolio).  I'd open it for the largest amount and only use what you need - you'll only pay for what you borrow.  Make sure you're accounting for this money and the interest it carries in your math to analyze deals. Good luck with these first steps, it's exciting!

Vijay Friedman · Answer

@Brooke Robichaud

Personally, I’d separate “opening the HELOC” from “using the HELOC.” If the terms are good, many investors prefer opening the larger line while they still qualify easily, but only drawing funds when actually needed so they’re not paying unnecessary interest.

Since this would eventually be tied to your primary residence, I’d also make sure you keep strong reserves and avoid overleveraging before you identify the actual investment strategy and property type.

The good news is your current LTV position gives you flexibility, which is a strong place to start as a future investor.

Jakob Mikhitarian · Answer

Hi Brooke and welcome to BiggerPockets!

You have a great equity position on your home and can definitely leverage that; it just depends how much you want to leverage. Most HELOC's can go up yo 90%LTV, so you can pull out 300k+ if need be. All depends what your risk tolerance looks like. Maybe you don't need the to go up to 90%, maybe 70-80% LTV. This could allow you for more flexibility on deals, help with rehab costs/unexpected repairs, and can act as a emergency fund. The key thing to note about HELOCS is that the interest is only applied to what you draw. So, you can take out 200k but it wont get piled with interest until you use it.

I would say it also depends on what kind of investment you're looking for. Commercial? small multi family? 5+ multifamily? Short term rentals? Awesome that you've joined Biggerpockets, it's definitely a great resource :)

Caleb Brown · Answer

I think it depends on what the HELOC is for. Are you going to purchase another property with it or is it a emergency fund if needed?

How Much would you pull for HELOC in my situation?

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