Possible second and third deal, heres my plan, please analyze

4 Replies

So I currently own one SFH which is rented. Heres my plan for the second/potential third:

I have the opportunity to buy a SFH (currently rented) for $105k that has been appraised at $120k. I want to take out a hard money loan for $105k to buy the place, and then pay a 15k lump down on the mortgage so I will have 25% equity on the house. I then intend to refinance the property into a conventional investment loan to pay back the hard money loan. Once the house has been refinanced, I want to take out a HELOC so I can put a down payment on another (third) house.

What do you think of this plan?  Good/bad?  Anything I should add/remove/consider?  

Any help is greatly appreciated!

@tyler Dunlap 

you might consider doing improvements to the house instead of paying down the mortgage.  There are many projects that can be done that will increase the value more than the dollars spent.  You'll then increase your equity when you go for the loan and potentially be able to get an even larger heloc. 

The downside of this is that you'll have to find a lender that will let you appraise at the improved value without much title seasoning. Generally all FHA loans require 6 months of title seasoning. Might not be worth keeping the hard money loan for 6 months.

 You could also try for a "homepath" loan which would allow for a very small (5%) down payment.   And then use your capital to improve the value of the house for the heloc.  I would beware on the heloc for an investment property as well.  Not many banks offer it.  I managed to get mine through bank of the west.  Wells Fargo was the only other bank that did a heloc for an investment property. 

Originally posted by @Lan Kawas:

You can't do a Heloc on non-owner occupied (there are actually some who will do it out there buy you are going to only get 50-70% LTV).

Sorry, but that is absolutely incorrect. Not every bank will do a HELOC on an investment property, but there are definitely banks that will. As proof, here's a link to Union Bank who will do a HELOC on investment and vacation properties.

However, I agree that forcing appreciation with some rehab work may be a better option to increase your equity in the property.  If there is no forcible appreciation - i.e. there are no needed repairs - then you are probably limited to what you described.  However, I would be interested to know what your rental rates are and what you're cash flowing on the property.