All Forum Posts by: John Michael

Happy Monday all,

We are looking to start our first BRRRR and have a HELOC for $195k. It appears that our choices to purchase our first property are the following:

1. Use the HELOC to purchase a property outright in cash and pay for renovations.

2. Use the HELOC for down payment and renovations coupled with a traditional mortgage.

In both cases we would refinance asap after finding renters, but curious which of these two methods has better returns or risk? Being our first, I guess we're just a little worried about being over extended with a big HELOC balance starting out.

Thanks in advance and be safe this week fellow Floridians.

Best,
John

Quote from @Katherine Hislop:

@John Michael Congrats on starting your REI journey! Yes, I'm a member and it's honestly invaluable. I've learned more from the meetups than anything I could learn on my own, and the other members are so friendly and helpful. I suggest becoming a member and consistently attending as many meetings as you can, even if you aren't interested in that meeting's topic, because the meetings are a great way to meet other investors.

Great, thanks for the advice Katherine.  We're looking forward to the upcoming meeting in October.  Hopefully our paths will cross sometime in the future.  Cheers.

Hi Katherine,

I hope your journey is off to a great start. My wife and I will be attending our first CFRI meetup in October. We are starting our REI journey now and look forward to learning more. Have you officially become a member of CFRI and are you finding value in it?

Best,
John

Hi Victor,
I'm in east Orlando (Oviedo) and my wife and are starting our REI journey as well. We are looking to start BRRRR'ing soon and had not considered wholesaling. If you'd like to sync up for a zoom call to chat sometime, I'll be happy to. I've looked for groups on meetup.com in the Orlando area and it seems like they don't have much activity for some reason. Best of luck!

Quote from @Andrew Freed:

@John Michael - Yes usually you have the option of the first 10 years being interest only or 1% of the loan is the minimum payment. Always go with the interest only option... HELOCs are incredibly powerful when it comes to DTI. When you go for loans and have an outstanding balance on your HELOC, the loan company holds the minimum payment (e.g. the interest only payment) against you rather than principal + interest. As a result, your DTI looks a lot sexier to lenders even if you have a large balance on your HELOC. The 1% of the loan requirement would hurt your DTI more since it involves principal. If you are looking to scale, I would advise you to look for another HELOC company that offers interest only payments for the first 10 years to reduce the negative impact on your DTI calculation. Also, it allows more financial flexibility.

Thank you for the insightful reply Andrew, very informative.  I've talked to the 3rd local credit union in 3 days and today's was the most promising so far.  They offer a variable rate interest only draw period of 10 years.  The rate is prime + .25 points.  If I elect to pay the closing costs out of pocket, I do not have to comply with the required $10,000 draw after closing, however if I roll the closing costs into the loan, I would need to do the required $10k,draw.  

So far, I'm liking these terms the best, but may still call a couple others so I can say I did my due diligence.  I'm not sure what the absolute best terms are for a HELOC quite honestly, so any insights on what I should be asking for would be great.

Thanks again all!

Quote from @Luisa Trigo:

@John Michael Hello, where are you located and looking for HELOC? I'm in the same boat shopping around for a HELOC right locally in St. Louis MO. I've seen good options at First Bank and PNC. They're showing better terms than the local credit unions thus far.

Hi Luisa,
I'm in the Orlando area. It has been suggested numerous times here as well as on YouTube to first go to local credit unions for the best deals so I've started down that path. If I continue to find terms like these that I'm not happy about, I'll then move to the bigger banks next. It's funny how I've probably watched over 200 BiggerPockets videos and other investement channels and the HELOC terms I describe above were never mentioned. It's true that you won't actually learn until you start doing it for real. Best of luck!

Thanks for the response Oliver, very helpful.  I contacted another local credit union and liked all their terms except that they require a minimum $10,000 draw after closing.  Not a fan of that idea either, I'd rather use the money when I want to, not be required to take out funds.  The search continues today.

Hello all,

A real estate rookie here in the midst of a HELOC application at a local credit union. I've used this credit union before for other things and they are very reputable. There is something in the HELOC terms that I'm scratching my head about though and thought I'd look here for feedback. Here are the basic terms of the HELOC that I've been approved for:

• "This loan has a variable interest rate, which is determined by the Wall Street Journal Prime Rate plus a margin. Your rate and margin will be determined by your loan to value and credit score. This rate may change monthly with a floor of 5.50% and a ceiling of 18%. The minimum monthly payment is 1% of the outstanding balance."

The 1% monthly payment is what I am questioning. Is this normal? I assumed our monthly payment would just be based on the HELOC rate? So if the rate is 6% and we draw $30k, our monthly interest only payment would be $30,000 x 6% divided by 12 months = $150

Paying 1% would double that payment to $300.

This is my first ever HELOC and not sure what the standards look like. Should I consider this or find a better one?

Thank you in advance!
John

Hello all,

A real estate rookie here in the midst of a HELOC application at a local credit union. I've used this credit union before for other things and they are very reputable. There is something in the HELOC terms that I'm scratching my head about though and thought I'd look here for feedback. Here are the basic terms of the HELOC that I've been approved for:

• "This loan has a variable interest rate, which is determined by the Wall Street Journal Prime Rate plus a margin. Your rate and margin will be determined by your loan to value and credit score. This rate may change monthly with a floor of 5.50% and a ceiling of 18%. The minimum monthly payment is 1% of the outstanding balance."

The 1% monthly payment is what I am questioning. Is this normal? I assumed our monthly payment would just be based on the HELOC rate? So if the rate is 6% and we draw $30k, our monthly interest only payment would be $30,000 x 6% divided by 12 months = $150

Paying 1% would double that payment to $300.  

This is my first ever HELOC and not sure what the standards look like. Should I consider this or find a better one?

Thank you in advance!
John