West Hills, CA · Member since 2015 · 7 posts · 1 vote
Hello BP! I've been thinking through ways to help beef up my cash reserves to purchase my 1st flip, and have been seriously considering opening a HELOC. Since you obviously don't pay anything (other than smallish paperwork fees to open) until you actually draw on the line, it seems to me to be a no-brainer to have open and available for when the time is right. Is there anything else I could be missing or not thinking about, that would be a negative to just having the line available? Any risk I'm unaware of if I use the same bank that holds my mortgage? Any and all feedback is welcome. Thanks in advance!
Investor/Landlord · Farmington Hills, MI · Member since 2011 · 1k+ posts · 1k+ votes
9y
Make sure you are sure you can handle the payments even if your flip does not return what you expect or results in a loss. Otherwise you could be putting your home at risk. Also, be aware that HELOCs can be cancelled by the bank with no warning. If you are counting on using the funds to complete a project it may be prudent to draw them out well before you will actually need them if you have no other source of funds.
Rental Property Investor · Alexandria, VA · Member since 2016 · 75 posts · 58 votes
9y
@Brad Young I used a heloc when I started. You will be treated as a cash buyer.
Make sure your heloc is interest only payment. PNC by default had my heloc checked for Principal + Interest even though I requested interest only payment. They fixed it and I went through a second closing on the same heloc.
When your payment is interest only, you have a better chance to handle the payment on your own longer, also that helps you to survive during rehab. Your holding cost is minimal.
Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes
9y
Reasons not:
It's a good strategy. Just know that your payment in a month or two will be different than your payment when you start. Variable rate loans make me uneasy.
I'll be selling my flip mid march and can't wait to pay off that credit line!