Am I able to use a HELOC? What other financing is available?

Question

I am finishing up a new construction STR build. I bought raw land in an LLC with a partner to do this. Although I think our personal names had to be on the loan in order to qualify.

My question is....when i finish construction on the new build, am I able to use a HELOC to pull funds to continue building additional units on this raw land? The zoning allows it, but we do not have funds to build right after construction.

The property is projected to make anywhere from 5k-10k/mo. It is a unique build and so the projected income is hard with no comps (hence the wide gap in income potential)

Thanks!!

Josiah J Hein · Answer

So the H in HELOC obviously stands for Home. Most banks require you to live in the home as your primary to qualify for the HELOC product. That being said, if this isn't a primary residence you can always cash out refinance. I would shop local smaller banks or credit unions though for a business or other line of credit. I like lines of credit because when you pay them off, you're essentially paying yourself back and can use them over and over again, where a refinance is not liquid! I hope this helps!

John Underwood · Answer

You need to check with that bank or another to see the requirements for a Heloq. HELOQ's are generally on a personal residence. Since a STR is commercial property and you have a partner and you have it in an LLC you have not be able to do it or you may just have more red tape than usual, but talk to your mortgage company or other banks about the possibility.

You'll also have to have equity in the property when your done.

Michael Baum · Answer

Hey @Mitchell Maginnis, you might be able to do a DSCR loan. It will be based on revenue projections. I am not sure if the do DSCR loans on new construction but it could be worth a look.

Leslie Anne Morris · Answer

It sounds like you need some sort of construction financing. I’d talk to local lenders to see what options are available. Typically, the lender will want to be in first lien position - this means you’ll have to refi any existing debt on the property.

Adam Oldham · Answer

Same issue here, applied for a HELOC even after I talked to a lot of local banks but all told me it had to be my primary residence to receive a HELOC. As others have mentioned either getting a business line of credit or cash out refi will be your best bet.

Ryan Moyer · Answer

HELOC's on investment properties are much more difficult to get, if you can find them at all.  Penfed used to be the go-to for this, but they stopped offering them on investment properties.  As of about 6 months ago TD Bank offered them and that's who we used.  Not sure if they're still offering them or not.  I will say the terms are worse on investment properties, and the whole process of working with TD Bank was just awful.  But in the end we got the money so I guess that's mostly what matters.

Norman Campbell · Answer

Ask a community bank for a Business Line of Credit with the property as collateral - accomplishes your goal and less paperwork.

Mitchell Maginnis · Answer

Hi Caroline! Thanks for sharing some of your input and knowledge!

I am an optometrist and my business partner is an architect/contractor. I put my paycheck in a shared bank account every 2 weeks and he has used that to build this 750 sq ft STR cabin with 3 unique lofts. We have built the entire thing ourselves. We took out a 40k loan out on the land at 65% LTV, but everything after that we have directly paid for with cash. There are no mechanics liens. We are hoping to be finished in May, start producing income, and then HOPEFULLY take a loan against the new build to build 4 additional units.

I believe the title is in our LLC, but we had to use personal assets as collateral due to the fact that the LLC was new and I had just started working (i am a recent graduate). I am all in on this project.

We are in a vacation rental dominated town. Not any houses near us other than resorts with multiple small cabins.

From the previous posts of you and others, it sounds as if i will not qualify for a HELOC.  That is alright, just looking for other options.

There have not been many comps sold in our area sold in the last 3 months. The most comparable is a condo for about 450k.

My partner and I have great credit scores. He has consistently made 100k+ for the past few years and I will gross 160k+ as an optometrist this year.

We are capable of taking things slow...putting our income + the new rental income in the shared account and slowly building the next 4 cabins. But we are young and impatient lol and very excited.

Thanks for the input everybody!

Caroline Gerardo · Answer

finishing up a new construction STR build.   Is the job card signed off and the project complete?  Rare to find lenders who want to do a loan with possible mechanics liens.

in an LLC with a partner to do this. Although I think our personal names had to be on the loan in order to qualify. The lender made you transfer title to personal names and it's still that way? You know property taxes will increase?

i finish construction on the new build, am I able to use a HELOC to pull funds to continue building additional units on this raw land? The zoning allows it, but we do not have funds to build right after construction.  If property is odd, legal non conforming, multifamily (more than 4) you are going to have big trouble with a residential appraisal. HELOC doesn't care what you proposed STR is, that does not matter. Valuation does. FICO 721 does. Non owner HELOCs are only for the perfect deals as they are high risk for the lender. My guess is appraisal will be lower than you think as comparables are what dominates residential valuation and you say there are no comps.

The other questions are: what comps are similar closed in past three months, what are your middle FICOS, what income do you both show on IRS returns past years, what loan to value is the first loan you have, when is this project operational, what exactly is the property...

Brooklyn McCarty · Answer

If you have a HELOC, you can use that money to do whatever you want.

Am I able to use a HELOC? What other financing is available?

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