New Investor in AZ Need Advice on Financing Renovation

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New Investor in AZ Need Advice on Financing Renovation

Andrew Dennis Ortiz
Phoenix · Member since 2021 · 2 posts · 0 votes

My girlfriend and I are new to real estate investing, living in PHX AZ. We both currently own 2 SFH's that we both have over 20% equity in. We just started renting out one of them and we are living in the other one. We just purchased a 3rd SFH using conventional Fannie Mae financing with 5% down. The house needs a full interior renovation and our plan was to renovate it, then move into it and start renting out the SFH we are currently living in. We thought we could use a HELOC or Home Equity Loan to tap into the equity we have in the 2 SFH's we own to fund the reno, but we have found out that sine one is a rental property already and our intent is to rent the other one out, that all the banks and credit unions we have talked to won't do HELOC or Home Equity Loans backed by these properties. Our long term plan for the new SFH is to live in it for a few years and then eventually rent it out as well, but we would like to do the reno now, so that when we are ready to rent it, it is ready to go. In hindsight a 203k loan or something similar might have been the way to go, but we did not realize we weren't going to be able to use a HELOC to fund the reno. We are looking to finance about 60k. We both have great W2 income, great credit, great DTI, but limited cash reserves at the moment. We are thinking cash out refinance is not a great option because we refinanced both SFH's when the rates dropped real low to 3% and 2.75% so we would be going way up on the rates to pull out that cash.

Is there a product or a bank/credit union that would be able to give us the home equity loan or line of credit against the SFH's we own? Is our only option to go with a personal loan to finance these renovations? Is a commerical lender an option? We do not have an LLC set up. We have reached out to Truwest, Bank of the West, US Bank and Lending One and all of them could not help us.

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  • David Avery
    Flipper/Rehabber · Phoenix Arizona · Member since 2020 · 1k+ posts · 686 votes
    5y

    If you have both been making your payments on your properties for 24  months on time

    both of your incomes have improved during said time

    both credit ratings have improved during said time

    Then your good to go with almost any financial company, you are not a risk.

    Hopefully one of your original loaning institute will go with you.

    Good luck.

    I know a guy that can renovate that pretty fast and priced good!  (hint hint)

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  • Steve Furst
    Investor · Tempe, AZ · Member since 2021 · 12 posts · 5 votes
    5y

    Hey @Andrew Dennis Ortiz, congratulations on your growing portfolio. There are two options I might recommend.

    1) A Fannie-Mae Homestyle Renovation Loan would work for you, since it seems clear that you purchased this rental as an "owner-occupied" property (noting the 5% down). While this would require a refi, rates are so so low that this might benefit you. This product allows your to refi your rehab costs into the primary mortgage - it's a product we've used ourselves when we renovated our home, so it's a good way to go.

    2) Alternatively, you could simply cash-out refi your rental or current home, as lenders will allow you to to take out up to 80% of the home value (although if you can keep it at 75% the rates are better). In today's appreciating environment, with low rates and inflation, it makes sense to tap into as much equity as you can. It's free money.

    I hope this helps, but either one of these is a great option to leverage your homes to give you the cash you need to buy/rehab your new property. Cheers.

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  • Chris I.
    Gilbert, AZ · Member since 2018 · 93 posts · 42 votes
    5y

    FirstBank does HELOCs on investment properties for qualified borrowers

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  • Dan Schwartz
    Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes
    5y

    @Andrew Dennis Ortiz since you own only three properties total, PenFed Credit Union can issue ELOCs on your investment properties. Once you get the fourth property, they will not write anything except a HELOC on the primary (which they will do regardless of the number of properties owned). Verify this with them, as things change.

    The bigger issue may be that you have only 20% equity in the investment homes. While that's a great position in general, I don't know of any bank that will write a line for greater than 80% LTV. Many are even lower than 80%; Bank of the West used to be 65% LTV when they wrote lines on investment properties.

    We don’t know your complete numbers, and that’s OK.  I would call PenFed and talk through what they can do for your investment properties. 

    If that doesn’t work, you may need to look at private money or even credit cards….but then your exit strategy to pay off the debt becomes supremely important (vs a line of credit that you could carry at low cost for a while).  

    Good luck!

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  • Michael Wilson
    Accountant · Peoria, AZ · Member since 2021 · 4 posts · 0 votes
    5y

    @Andrew Dennis Ortiz have you found banks that will let you borrow a heloc at more than 80% LTV? My local bank said that's the max they'd loan even on my primary residence.

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