All Forum Posts by: Justin Thompson

Originally posted by @Account Closed:

Justin,

I appreciate your feedback. The strategy about refinancing the investment property to pay for the HELOC really makes alot of sense. I just have never considered HELOC as an option probably because I was under the impression that it is like a credit card that you can only use in a certain place and when you do a cash advance, you'll have to pay fees. I will look into HELOC now and see how I can use it instead of refinancing our house.

Question, does HELOC have the same interest rate as refinancing? Would HELOC be a better option than refinancing if its a flip?

Thanks again,

Earl Melendres

Earl,

HELOC's are similar to a traditional mortgage. I just had a friend of mine secure a home equity loan for $230k @ 3.9%. A home equity line of credit can be used for whatever you want. It is similar to a credit card that is why it's a "consumer" product as it essentially is a big credit card except... it's secured by your house ha.

A HELOC will be a better, smoother option if you find a lender willing to work with you. The process is simple (less than 30 days) and from my experience no fees.

If you're going to buy and hold the property I would still attempt to do a line of credit and then once the property is rented, refi the rental property to pay off your HELOC on your personal home. There are investment property lines of credit as well that you could look into. So you'd basically be taking one line of credit to pay off the other.

If you're going to flip the property- check into a available HELOC's... then once the property you just bought sells, take the proceeds that were used to buy/rehab the property and pay off the HELOC. Since it is a line of credit, that money can be used for your next property. Make sure though you have an exit strategy. Meaning, even if you're going to flip this property, worst case scenario, have a lender willing to refi it if it won't sell. That way you can pay off the HELOC on your personal home.

Henry,

Welcome and good to see you are eager to get started!  Tips and advice is all over the BP site. Any specific questions you might have? 

Robyn,

I am not in Washington, but I can try to help via email or on this post. What questions do you have?

Earl,

My thoughts would be to look into a home equity line of credit (HELOIC). Have it appraised and see what the bank will issue on the remaining equity. Banks typically will do a HELOC up to 80% of the appraised value however, I know a lender that will do 100% HELOC on your personal residence.

If you intend to buy and hold you could take out the HELOC, use the money to purchase and rehab your investment property with all cash. Once the investment is up and running, refi that property to pay off the HELOC. There is a line of credit option or also a home equity loan product available. A HELOC has interest only payment option as well. So your payments on the money taken out would be minimal. Then after you have paid back the money taken out, you can continue to use the HELOC for the purchase of other properties. Qualifying for a HELOC and the "loan/application" process is smooth and simple. Also, a HELOC has different debt to income ratios. Also, if you refi there is probably going to be closing costs and fees associated with that. Typically a HELOC has no fees as the bank covers the appraisal and it is considered a consumer product. So the underwriting is different as well.

My vote would be take out a line of credit and use that to expand your portfolio. Just my thoughts though!

No problem sir! Here to help. I'll be sure to clarify that next time about call dates/balloon payments with commercial products.

Originally posted by @Keith N.:

@Justin Thompson

 Gotcha, thanks.  Hypothetically speaking, What type of repercussions might ensue if caught?

Hypothetically speaking... when you close on a FHA loan you have to sign a document that you will be owner-occupying the property within 60 days of the closing. There are also guidelines stating 1 year minimum you must occupy the residence. If you rented it out in say 6 months after the closing and they caught you, you'd be in violation of the loan. They could do a number of things but more than likely they'd call the loan in or hit you with some kind of civil legal action for mortgage fraud/violation. Not sure exactly how strict they are or what they'd actually do if they caught you. I know an investor locally who was buying HUD homes in the owner occupant only bid time frame. They are going after him for fraud.

Originally posted by @Christopher Telles:

Originally posted by @Justin Thompson:

I have 3 going on 4 commercial loans on residential properties. Doesn't have to be 5+ units to get a commercial loan product.

Qualifications are different for each bank and what type of loan product you structure.

Typically:

75% LTV

4.75-5.25% on $250k+ investment

--25, 30 year amortization 

5.25% interest on $100k-$250k 

--20, 25 year amortization 

5.75-6.25% interest on $30-$100k 

--10, 15, 20 year amortization

Fees: typical for closing costs, transfer fees, documents fees of a residential loan... Not much different.

Process: once you prove to a lender you're worthy of a commercial product, the qualifying is different than residential. Loans are closed in either the LLC or personal name. I choose LLC because it stays off my personal credit. Loan process will seem like a breeze verse a residential loan on an investment property.

Insurance: a landlord policy is a landlord policy. The loan product difference I.e residential verse commercial does not change the rate. The only thing it does differently if you close in the LLC name then the named insured will be your LLC.

Success: Depends on how you structure the deal, that's the beauty of commercial side of lending. I've grown by $300k in a few months using leverage and my lenders commercial products. 

 Just curious, in the commercial loans your taking out on residential property are the loans fully amortized? Or do the loans have a call date e.g. 7, 10, 15 years into the loan?

@Christopher Telles

Rarely is commercial fully amortized however, I have two loans that are fully amortized but shorter terms and little higher interest- 1 being a 10 year term and the other is a 20 year. My 3rd loan will need to be modified in 5 years depending on the lender's guidelines at that point and time.  It has a call date/balloon payment in 5 years due.  I try to structure my deals so that I have atleast 5-10 years without having to modify or refi a loan. The 4th loan I am acquiring is structured as a 5/5/25 and I can not honestly say if it has a call date/balloon payment provision or not. I am curious now and will have to ask my lender.

1 year is their guideline. How they catch people going FHA then 6 months later moving out... You live in a property and have a regular home owners policy. You move out to your new place and then change the home owners policy to a landlord dwelling policy as now it is not owner occupied. Lender gets updated of the new insurance change and.... Bam, caught.

Are you asking how to finance it or? Do you have a property in mind and want to make an offer before it goes pending? Just trying to gather what info you're seeking in order to help you... 

#1) Have a way to finance it. Get qualified see what you can/cannot afford. 

#2) Analyze the property you find after knowing what you can purchase to make sure it's a solid cash flowing property. Check out the benefits of owner occupying it if that's what you intend to do. 

#3) Put offer together

#4) Make offer 

#5) Sit back and wait. 

Originally posted by @William Schmelter:

@Justin Thompson

   Justin had a good point about the risk.   You need to be ready when you buy this property to rehab and sell quickly, or refinance if the property doesn't sell.   Hard money loans are expensive and are for short term only

 Thank you sir.

If you do chose to go the hard money route, make sure you have a lender that'll refinance the property for a rental if it doesn't sell if your goal is to flip BEFORE you take out the hard money loan. That way you have an "out". Always have 2-3 exit strategies in place for every deal. That way if A best case scenario doesn't work (selling it), B would be refinancing it to buy out the hard money and continue to market for sale once refi'd. C refinance and keep as rental long term or whatever your plan C strategy is.