I own 2 properties. What should I do next with a heloc?

Question

Hello everyone,

Ive been a long time lurker on these forums, but usually never post. I live 20 minutes East of Los Angeles and Today I wanted to reach out for some advice.

I currently own a duplex and a condo. I have about 140K in equity in the condo I bought back in June (I put 20% down and rehabbed it) and will be pulling a HELOC on it.

-A lot of people are uncertain how the market will shape out after all this covid-19 situation is over. Would it be wise to jump into a BRRRR at this time?

Other then doing a flip or BRRRR with a HELOC what other strategies do you guys recommend to use with a HELOC?

Whitney Hutten · Answer

@Jonathan Perez I'm curious... If you are concerned with prices taking a dive, why are you investing the HELOC?  Technically those funds are still tied to the original property, so if you invest them and things go sideways or south, you could be forced to sell the first property or lose it entirely.  If prices keep going up (at least for a little bit) you could convert the HELOC to permanent debt, but now you have inflated your expenses.

I do get why people use HELOCs as opposed to cash-out refinances (they are cheap right now, easier to secure, and flexible).  Personally, I'd use the HELOC in projects where you know you have a reasonable chance of getting your money out quickly (say a BRRRR, maybe a quick flip).

As the adage goes: "Live where you want. Invest where it makes sense." Does SoCal make sense right now?

Jon Schwartz · Answer

Jonathan,

I know ADU builders and investors who have built ADUs. I don't think I've worked with anyone yet who's built an ADU for the investment. And I began to build an ADU, but it was actually more economical to sell the house before the ADU was fully permitted, so I didn't complete it.

Would you be interested in referrals to ADU builders?

Best,

Jon

Jonathan Perez · Answer

@Jon Schwartz hey Jon, yeah that’s my biggest concern with a BRRRR and a flip, we don’t know what’s gonna happen with prices here in So cal.

I actually haven’t thought of adding an ADU. Do you happen to work with anyone who has experience building ADU’s?

Thank you for the advice, Jon!

Jon Schwartz · Answer

Jonathan,

I'd be careful right now. I think the direction of prices in Socal over the next year is a big question mark. If you find a great flip or BRRRR deal, go for it, but if it's not a great deal, be careful.

Another solid strategy with HELOC money is building an ADU. Have you considered adding an ADU to your duplex? The ROI on ADUs is phenomenal relative to other ROIs in Socal.

Also, if you do go the flip or BRRRR route, maybe stick with condos. So many people are leaving their condos for the 'burbs that you can probably find a sick deal on a dated condo.

Interested to know what you end up doing!

Best,

Jon

Cody Barna · Answer

@Jonathan Perez if you find a deal that makes sense and you're able to secure financing I would take advantage of it. Considering you're in a good place financially, it sounds like you have experience rehabbing properties. You could potentially rent the entire duplex and use the HELOC to fund a 2-4 unit house hack.