All Forum Posts by: Kelly Byrd

I wanted to post an update after doing some more thinking and researching my own HELOC a bit more:

• Some HELOCs will do a fixed-rate advance. Locking in a 15 year fixed rate makes comparing against a mortgage on the new property a little easier. 
• If you're funding with a HELOC, you're basically making an all cash offer to the seller, that may make your offer more attractive to them, possibly getting you a better deal or making it more likely to be accepted.

My wife and I considering a multi-family or SFR rental in Sioux Falls. Once concern is that it's a smaller than other metro areas we're looking at so information seems a bit harder to come by. I am hoping to connect with folks on these forums that are willing give referrals for turnkey operators, property managers, agents who know something about investment property, contractors, or maybe just talk numbers and expectations for the overall rental market there. Obviously if anyone has specific deals, I'd like to hear about those too!

We're serious buyers, but I want to be upfront that this will be our first RE investment deal. I invested in some note funds last year, no actual property yet. We'd like this first deal to be pretty hands off, not looking to rehab, and we'll place it with property manager. 

Ok, so if you're looking going to wholesale go hang out in that forum. Figure out the first steps (I don't know much about wholesaling, but I would bet it's around getting a marketing funnel setup) and set yourself some specific achievable goals with a time line attached. 

@Kyle Winslow, I'm very new to this is as well and here's what I did:

• Read the Bigger Pockets Ultimate Investors Guide. It lays out some basics, but most importantly it describes the major common strategies (buy & hold, flip, wholesale, etc)
• Think quite a bit about each of those strategies and see what fits you and your situation best. Do you have no capital but are willing to hustle and market? Maybe you should wholesale. Are you comfortable doing the work or managing a crew for a flip? Are you looking for steady passive income from rental properties? Each of us bring different pros and cons to the table. Figure out what yours are and which strategy suits you.
• Read the forums specific to the strategy just read lots of posts, see what questions people ask
• Go to a local meetup. I didn't think I had anything to offer the folks there, but they were happy to see a new face and welcomed me. I got to ask questions from people that are on the ground doing this day in and day out.

I've thought about this and there are a few ways to mitigate this:

- My HELOC has a max cap on interest, so I know the worst it could get. Also, it can't rise more than 2% a year.

- Some HELOCs (mine does) allow you to have a fixed-rate draw or two. So I could get a known fixed rate.

I haven't looked at duplex prices in those areas, but maybe you should look at "house hacking?" That is, buy a duplex and rent one half while you rent out the other? At worst, it would lower your monthly housing expenses, freeing up cash to save for the next property. If it was a great deal, your renter covers your mortgage entirely while you're building up more equity and learning to be a landlord. Later, you could move out and rent both units. I haven't looked seriously at doing this in the cities you mention, but might be possible. 

So I was thinking something like doing a private money loan or a note fund that pays a given preferred rate monthly. It's a much simpler transaction there: "I get X% per month from investment, I pay Y% to the HELOC servicer" The only risk I see is losing my principal.

I'm considering using a HELOC to fund investments that cash flow right away. In the best case, it seems like a pretty obvious arbitrage between the rate of my HELOC and the rate of return on the investment. But, I'm new and I know better than to just jump in so I thought I would ask you folks to see what the collective wisdom I could get.

Under what conditions would you use a HELOC to fund an investment? When would you not?

I would be biased towards the conventional mortgage on the investment property because it doesn't directly risk your home and will likely be a fixed rate (vs variable on the HELOC)

Given that, I would look at it like this:

• Pick a time frame maybe 2-3 years (you said buy-n-hold, so that would be a minimum), compare the overall costs (fees, interest, etc) of the HELOC vs the conventional loan. If the conventional costs less, go with that.
• If the HELOC costs less, is it a variable rate? Many are. If so, you should take a guess at how much it'll rise in the next few years.
• If the HELOC still costs less overall, consider the risk of using your home as collateral. Weigh that risk against the lower cost.

What are the overall costs (closing costs, interest, etc) over the loan term you're considering? Would this a conventional loan on the investment property vs HELOC on your current residence? If so, you should consider what happens if things go south.