Parking 100k in HELOC better than parking in savings?

Question

I hold a 30y conventional mortgage and 100k in checking account.i have been going through a lot about velocity banking these days and trying to understand it conceptually.Would it make moresense to park 100k in HELOC instead of non interest bearing checking account?

Allan Smith · Answer

A HELOC does not pay you interest. It is a line of credit. Like a big credit card.

Darson Grantham · Answer

@Jason Pedersen you are absolutely correct, I misspoke and was referencing a Home Equity Loan (lump some upfront paid back over a period of time) Thank you for catching that!

Jason Pedersen · Answer

That's exactly how a credit card works. Unless you have a card with an annual fee (there are plenty that offer $0 annual fees), you only pay interest on charges you don't payoff each month.

As others have pointed out to the original poster, you don't stuff cash into a HELOC. The HELOC represents the equity you already have in the property and it allows you to use that equity (at a cost of your interest rate).

Daniel McNulty · Answer

@Peter Morgan

The interest saved on the mortgage likely would be greater than parking it in an average savings.

That being said, you will likely be limited to using 80-90% of it as the lender will want some equity left in the property. Unless of course you already have ample equity in there.

When you do go to use it the rates on Helocs tend to be higher than direct residential mortgages.

Darson Grantham · Answer

Keep in mind a HELOC is NOT like a credit card because you are ONLY paying interest on the funds that are pulled from it.  if you get a heloc, it sits and you NEVER use the money for anything, you are not paying interest on that money.

Just my two cents.

Marc Winter · Answer

@Peter Morgan,  in our area there is a shortage of available units and a surplus of tenant-applicants.  Rentals move very quickly here.  I don't know the size of your location, but here we are in a small city with a general population of about 70K, up to 100K with the small, surrounding towns.

We are finding lots of investors and tenants looking to get out of the major cities close to here--NYC and Philly, both about 2+/- hours away.  I'm hearing that's the case in many locations around the country.

Keep looking!

Jody Sperling · Answer

I can't evaluate what you are finding or not finding in Des Moines, but I do know there are ample deals in the Omaha and Council Bluffs markets, both which are driving distance from you. My guess is you can find the deals in Des Moines. Perhaps get involved in a local REIA group. Some people have money, others have deals. Let others know you have cash and they'll bring deals. Then it's up to you to run the math and ensure the deals are really deals.

As for renters, we just placed tenants in our rental property, and did so in two days. At the right price, you shouldn't have issues filling vacancy. The market is super saturated at the moment: more potential tenants than properties. Fear of COVID is wise to a point, but don't let it be an excuse to stay still.

Peter Morgan · Answer

@Jody Sperling

Thanks Jody please  advise on how to partner with someone who can show the ropes because I am finding it hard to find deals to force an appreciation.Would it make sense to go out of state? Also I am somewhat circumspect about in investing in a new real estate deal as it can be somewhat tough to find tenants during this Pandemic so was considering other options that would save on interest such as refinancinv and HELOC but I am open to other ideas.

Thanks

Jody Sperling · Answer

If you have the 100k sitting in an account already, a HELOC might not make the most sense. Instead you might want to consider cash purchases on real estate using the BRRRR method. If you've never BRRRRed before, consider partnering with someone who can show you the ropes for a piece of the deal.

When you find the right property, buy it low, rehab it, and refinance your money out, you can rent it and repeat with another property. Using this process you could fairly quickly acquire a good number of doors and maintain a large safety-sum of cash-on-hand, which I assume is why you've kept 100k available at the moment.

Parking 100k in HELOC better than parking in savings?

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