Hi all. I need some help. I have a condo that is payed off and I want to take out a home equity loan to use as a down payment on my first investment property. The property appraiser's website says my condo's "Just/Market Value" is $93,860. Let's assume this is the number used to calculate my HEL; 80% of that is $75,000. So now I will have two separate loans to pay back, with possibly two different sets of terms. How would I calculate the ROI on a potential investment property of let's say $300,000 using the Bigger Pockets calculator or the four box method? I ask because there could be two different interest rates on both the loans. And then would I refinance to consolidate both those loans into one loan after the seasoning period?
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
6y
If you're using the BP calculators, @Mike Colucci, you just put the HEL loan as an additional expense. You could refi to consolidate, but you'll need to get to the point where the pay off number of the combined loans is <75-80% LTV. You can do that by adding value and/or aggressively paying down the loans to reduce the balance(s). Practically speaking, the spread between the loans probably won't be very wide and consolidating would incur an additional set of closing costs. May not be worth it.
Thanks @Jaysen Medhurst. I didn't even consider the closing costs. It seems like the best thing to do in this situation is to aggressively pay down the initial down payment.