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?
Thank you for your constructive thoughts BP!
@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.
Thank you again for clarifying! Such informative replies!
Man this is getting exciting. Almost got things lined up to pull the trigger...
I pay both as well. Every payment frees up more cash to invest.
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