Newbie needs advice- use HELOC or hard money lender

[Rachael Shad]

I've always been a casual real estate junkie- love looking at whats for sale in my area, looked at 100+ houses before deciding to buy my primary residence, etc. In the last few months I've been seriously thinking about getting into the buy and hold market. I started looking at some properties that looked promising and through speaking with an agent found out about a property that wasn't listed yet, but the owner was thinking of selling and there was a tenant who would like to stay in the property. 

I looked at the house, met the tenant and did the calculations recommended on BP. The accepted offer is 65K, the current rent is $850. When I ran the numbers using a 25% down payment i got a cap rate of 9.7% and CoC of 19.9%.

Here is the problem, I figured I would qualify for a conventional loan. Initially I was going to have the loan in my husbands name (so we could hopefully each get 4 properties with conventional financing over time as we grew our portfolio). However he has a foreclosure from 2010 and even with a >750 credit score he wont qualify till outside of the 7 year window. I recently started working part-time because we had a baby, so my income won't cover my primary residence along with an investment property since I cant use my husbands income. SO.... I iwas thinking of trying to get a hard money lender and pay the higher interest rate till next year and try to refinance in my husbands name, or I could use a home equity line of credit and pay cash. However the payment on the HELOC is 1.5% minimum a month, so I'd be using almost the home rent income to pay the loan for the next year. I really feel strongly this is a good deal- am I crazy for trying to make it work? Which option would you go for in my situation?

Thanks in advance and I appreciate any advice!

[Giovanny Alfonso]

Hi Rachael,

You can use 75% of the "proposed" rental income and apply that towards the debt of the home you want to purchase, when doing a conventional loan. So in this case you can use $637.50 to offset the debt on the investment property. Not sure if that is enough to get your ratios in line, but figured I would put that out there. Please let me know if you have any other questions.

Gio