My experience with the HELOC strategy

5 Replies

Hello everyone, I just wanted to share and get some feedback from other investors who have used their personal home to get a HELOC and start buying investment properties.

I got a HELOC on my home for $150k. Was able to buy 2 duplexes cash, and was able to negotiate a pretty good deal I think. The issue I have been running into now, is getting mortgages on the rental properties to fund my HELOC again, to continue buying. I have found a few banks willing to lend 70-75%, but the rates take quite a hit.

Investment property

Multi-family

Small loan amount ($50K)

The last Lender I was working with, had my closing costs at about $4600 + prepaids.. $56k loan, I would net about $49k. That is almost 10% in closing costs! Way too high in my opinion. I ended up cancelling all my applications and just doing a personal home refinance for the extra money. My plan is to stockpile as much income as I can from 4-5 paid for rentals and eventually build enough cash to buy another rental. My house payment has gone up, but all in all, it's a better deal than what I would've gotten with the seperate mortages on the investment properties.

Yes, definitely watch your cost of capital. Sub $50k loans are tough to get anywhere from what I understand.

I'm exploring your method now, but a little reversed.  I'm buying with cash I have then getting a Heloc as a line of credit in case another deal comes up during the 6 month seasoning.  I'm buying for 90k and should be able to pull out $100 with $2800 in closing costs 7 months from now.  

Wish they were all like this. I was happily taking a nap when a buddy showed me a house he inherited. Not bankable as is.  Great discounts can be had with cash as you mentioned. Good luck to you, Alex!

anything under 60 and loan fees are brutal. my last one came in at 58.5K and it cost me almost double. VERY annoying.

@Alex Corral  Are you happy how your strategy has panned out? 

Very interesting topic. I'm currently implementing a portfolio line of credit on several properties and using it essentially how you guys are... buy in cash, stabilize, refinance out... If I can't refinance under good terms, I can term out the line of credit and simply focus on paying that off quickly. 

In theory it sounds so easy to do a little rent raise, sub-meter expenses out, simply renovations, and go back to the bank with a brand new income statement... but perhaps it isn't enough to instigate a refinance, then you're stuck with all your "deployable capital" in one property.

Jonathan Child

I feel a little "misled" on how easy it would be to get my cash back to keep investing. It might be my choice of properties (multi-family), but I was definitely not expecting closing costs to be almost 10%. I have 3 duplexes that would've cost me almost $15k in closing costs to get my initial $150k back.

All my properties are worth about $80-90k. I think you could avoid the hit for the small loan amount if you buy single family homes of about $120k, but the returns are diminished for me in that case.

I worked a deal with Quicken & got my home refinanced, paid off the HELOC & pulled out an extra $80k to look for 1 more property. The closing costs were about .5%. Fixed rate & my interest is fully tax deductible (the HELOC is no longer).

Alex

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