$170K HELOC what would you do?

8 Replies

Close to closing on a $170k HELOC with PNC Bank (no closing costs, interest only for 7 year draw period) due to paying down primary mortgage and market appreciation. I live in Tampa, FL, and most of properties have also appreciated at peak values.

I am currently stuck in analysis paralysis. I’m looking at 2 different investing strategies and would appreciate others perspectives:

Option 1: Use HELOC funds to put 20-25% down on 2 maybe 3 ugly homes with intention of following the BRRRR strategy. With this option, I'm looking at local homes in bad/transitional neighborhoods.

Option 2: Use HELOC to buy 1 home (under $150k), fix up $20k, rent, then refinance at low interest rate and pay off HELOC. This would be a nicer neighborhood, but will take longer to find a deal that meets sound investing criteria.

What would you do? Advice please?

@Tom Rolph thanks Tom, that was my thought. My only concern is we’re definitely in the Peak of my local real estate cycle in Tampa. (and I don’t want to buy out of market). I guess if I buy right, that can overcome just about any cycle.

Now you are thinking like an investor! Get a REALLY good deal on the purchase and it will insolate you from all kinds of unexpected events in the future. The other thing to remember is that you are not buying these to sell tomorrow. As long as you have good cash flow, if the value drops a bit after you have refi'd your seed money back out of it, you are set to do it again at the new lower prices.

@Shannon Ludlow whatever properties you go after, I would highly recommend making sure that a refi or sale is your exit strategy. HELOC's sound great when the funds become available because you feel cash rich and feel like you can grab a lot of properties. But the payments are interest only and you will have 2 mortgages on a single property.

If you're able to buy properties at a massive discount, rehab, and pay for the refi all using the HELOC AND pay off the HELOC in full, then nothing should stop you from growing your portfolio rather quickly.

Also, a HELOC that is close to its top acts like a big old credit card that is close to maxed. It contributes to the debt to income DTI ratio and makes it hard to refinance later. You really need to have a clear path toward refinancing.

As an aside, in your Option 1, you talk about buying in bad or transitional neighborhoods.  I would recommend areas that are already on the upswing.  People still have motivation to sell at a discount in all sorts of areas, and I'd work to buy in nicer areas.  Better tenants for rentals, better houses for flipping due to higher demand. Just my 2 cents.

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