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Conventional vs. HELOC vs. Home Equity Loan

Posted

Hello everyone! I am beginning by real estate journey with purchasing my first multi-family home to rent out to section 8. Does anyone have any feedback or thoughts on which loan product to use? I have my primary residence that I have about 450k of equity in. Given that I've been able to find brokers willing to give me a HELOC off my primary residence with a fixed rate are there any drawbacks of using a HELOC instead of a conventional loan vs a home equity loan? I'm thinking the liquidity of the HELOC would be great to pull the trigger on a good deal when it comes and I don't want to pay interest on taking out money I'm not actually using yet since I haven't found a property yet.

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Nicholas L.
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Nicholas L.
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Replied

@Miguelli Fernandez

if you buy something with 100% borrowed money, you will likely be cash flow negative every month. HELOC money is expensive.

you will also need a strategy to be successful in section 8.  buying a random property just to 'do a deal' and not having a trusted core 4 will likely result in failure.

https://www.biggerpockets.com/forums/963/topics/1195280-expe...

https://www.biggerpockets.com/forums/48/topics/1137397-balti...

  • Nicholas L.
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    Nicholas, thank you for replying.  I have been wrestling with this the last few weeks now.  I am working with an investor friendly agent that has had great reviews on biggerpockets but still doing my own research on them, their content, and their recommended vendors/services.  Problem is you don't know what you don't know at my level.  Stuck in analysis paralysis. My wife and I have a high w2 income and hoping to add real estate to the portfolio to diversify, learn something new, and for tax purposes. 

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    Nicholas L.
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    @Miguelli Fernandez

    are you local to the market you're looking to buy in?

  • Nicholas L.
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    Quote from @Nicholas L.:

    @Miguelli Fernandez

    are you local to the market you're looking to buy in?


     No I’m in Southern Cali and looking into Cleveland market.

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    Benjamin Aaker
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    Benjamin Aaker
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    The HELOC can be a great way to purchase a property, but only if used right. The rate is indeed higher than a conventional loan, and is usually variable. The HELOC can be set up quickly and acts like another bank account, which you can use when needed, and only what is needed. The new property can be purchased with the HELOC, but when doing your underwriting, the new property needs to be able to pay its own mortgage and the HELOC back. Which means, you will want to pay the HELOC back as quickly as possible.

  • Benjamin Aaker
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    Was able to get an offer from a broker for a fixed rate HELOC at 8.4% for 120k over 20 years. If I decide to take the loan out I would pay for the property and have tenants pay the monthly on the HELOC and have the cash flow if any go into the principal. My main issue is the $4816 in fees to take the line out.

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    Quote from @Miguelli Fernandez:

    Was able to get an offer from a broker for a fixed rate HELOC at 8.4% for 120k over 20 years. If I decide to take the loan out I would pay for the property and have tenants pay the monthly on the HELOC and have the cash flow if any go into the principal. My main issue is the $4816 in fees to take the line out.

     who is this with? I would love to talk to them about a HELOC. Maybe they will even give you a referral fee. 

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    Quote from @Penney Vasquez:
    Quote from @Miguelli Fernandez:

    Was able to get an offer from a broker for a fixed rate HELOC at 8.4% for 120k over 20 years. If I decide to take the loan out I would pay for the property and have tenants pay the monthly on the HELOC and have the cash flow if any go into the principal. My main issue is the $4816 in fees to take the line out.

     who is this with? I would love to talk to them about a HELOC. Maybe they will even give you a referral fee. 

    I didn’t take the offer yet but this was a few days ago. Obviously still shopping around. Purpose Funding in Irvine, Ca. My contact was Derek Velker. Mention my name if you can! Good luck!

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    Replied

    @Miguelli Fernandez

    you're not going to cash flow with 100% financing at 8.4%.  probably anywhere but certainly not in Cleveland without a trusted network.  please proceed with caution.

  • Nicholas L.
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    Quote from @Nicholas L.:

    @Miguelli Fernandez

    you're not going to cash flow with 100% financing at 8.4%.  probably anywhere but certainly not in Cleveland without a trusted network.  please proceed with caution.

    Exactly my thoughts. Considering conventional at this point and doing 20% down. Thanks for your continued helpful responses. 

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    Samuel Diouf
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    Samuel Diouf
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    Replied

    I think the HELOC is a great way to purchase certain deals. I wouldn't take out a HELOC and purchase a turnkey property as a conventional loan would have better terms.

    The HELOC is great because you can buy distressed properties, use the remainder of the cash to do the rehab and then you can refinance out to a loan with better terms.

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    Quote from @Samuel Diouf:

    I think the HELOC is a great way to purchase certain deals. I wouldn't take out a HELOC and purchase a turnkey property as a conventional loan would have better terms.

    The HELOC is great because you can buy distressed properties, use the remainder of the cash to do the rehab and then you can refinance out to a loan with better terms.

    This was exactly what I needed to hear to move forward! 
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