Rental Property Investor · Bozeman, MT · Member since 2015 · 60 posts · 10 votes
Pen Fed vs US Bank HELOC
Shopping for HELOC's I feel I have narrowed my focus from many, to a couple of options.
With so many variables, I would love some feedback from people who have a HELOC.
Pen Fed currently offer a HELOC at: 4.5%
There is also an interesting 5 year offer with a rate of 3.75%, 15 year term (2% due of balance each month).
US Bank offer a higher rate approx. 5.80% (as of today), no fees if you are a platinum member (must have at least 25k balance to qualify)
They also offered a 5 year fixed rate of 5.19%.
I would be using this HELOC to BRRRR property. So my question is basically, which is better for me? I don't like the idea of paying back 2% of the loan per month since the goal is to rehab with a higher ARV and obtain a conventional loan, paying back the HELOC in full.
Any BRRRR pro's talk me through the best use of a HELOC? Should I just elect to pay interest and then when higher ARV of property appraised and loan issued, pay back in full?
@Jonny Morris Where I am not yet a pro, I am currently using my HELOC to purchase properties. The first property I purchased I used 25K from my HELOC to purchase the property and received a Hard Money loan to cover the rehab. I knew going into the deal that on month 6 I would be cashing out, so I factored all of my carrying expenses into the deal. I was all into the deal for about 60K and refinanced obtaining a 75K loan at 100K ARV. I then paid off my HELOC and still pocketed about 10K from the deal in addition to the $300 after all expenses (Mortgage, Taxes, Insurance, Reserves, etc.) that the property cash flows. My HELOC is 5% fixed with a 10 year draw period and a 20 year payoff term. Nothing fancy, but it was enough to get me started, which at the time was all I cared about.
@Jonny Morris Where I am not yet a pro, I am currently using my HELOC to purchase properties. The first property I purchased I used 25K from my HELOC to purchase the property and received a Hard Money loan to cover the rehab. I knew going into the deal that on month 6 I would be cashing out, so I factored all of my carrying expenses into the deal. I was all into the deal for about 60K and refinanced obtaining a 75K loan at 100K ARV. I then paid off my HELOC and still pocketed about 10K from the deal in addition to the $300 after all expenses (Mortgage, Taxes, Insurance, Reserves, etc.) that the property cash flows. My HELOC is 5% fixed with a 10 year draw period and a 20 year payoff term. Nothing fancy, but it was enough to get me started, which at the time was all I cared about.
Jonny, same concept with me. I use my heloc for flipping and then pay back the HELOC in full. I got mine from NFCU two years ago and use it for my rehab and it works very well for me. Works for materials and also for labor cost. I believe mine is aroung 5% and there was no cost except for an appraisal which is waived if they have the information online which at the time mine wasn't. It did take a while to process it around 6 weeks I believe. Navy Fed is a bit slow with their processing but I love them for most of my banking including my business checking.
- BRRRR is best suited to cash buy, rehab and then pull funds out with a rifi?
IMO not necessarily. Granted you have access to all the cash upfront, a HELOC is still a form of leverage. I used leverage as I did not have the cash up front. Now it definitely will make the deal more comfortable not having monthly or a balloon payment hovering over your shoulder, but either way the goal is to get the money you have in the project back as soon as possible for the next deal.
- Did you elect to pay interest only (knowing you would pay in full after project was complete)?
I actually pay Principle and Interest on my HELOC. I pay about $180 a month, lets just round up to $200. Multiply by 6 and factor the $1200 into the expenses of the deal. Once the project is complete, everyone is paid back, HELOC, Hard Money lender, Credit Cards, etc.