Choosing a HELOC

[Zak Dolak]

Hey guys,

Question, I want to get a HELOC. I've checked into my Credit Union and Primary bank. The CU offered me $200k, interest only or principle and interest payments. First year a rate of 5.24% and after that it's 1/2 point below prime for the life of the loan. $550 for an appraisal of my primary residence, no other fees.

My primary bank offered me $300k, principle and interest payments only, .09% above prime the life of the loan and an $82 dollar fee. 

Which would you guys choose? Some background, I am a new investor looking for my first property. I'm roughly 40 minutes south of Allentown, PA. My primary residence is paid off which is why I want to get a HELOC.

My plan is to buy a few LTR’s to start out. 

Thanks!

Zak D. 

[Jonathan Bock]

@Zak Dolak

How important is access to the additional 100k to you?  

Would you be open to a loan versus a line of credit?  

What is the amortization on the primary bank P&I ?

I could keep asking questions for a while ha  

[Matthew Morrow]

Quote from @Zak Dolak:

Hey guys,

Question, I want to get a HELOC. I've checked into my Credit Union and Primary bank. The CU offered me $200k, interest only or principle and interest payments. First year a rate of 5.24% and after that it's 1/2 point below prime for the life of the loan. $550 for an appraisal of my primary residence, no other fees.

My primary bank offered me $300k, principle and interest payments only, .09% above prime the life of the loan and an $82 dollar fee. 

Which would you guys choose? Some background, I am a new investor looking for my first property. I'm roughly 40 minutes south of Allentown, PA. My primary residence is paid off which is why I want to get a HELOC.

My plan is to buy a few LTR’s to start out. 

Thanks!

Zak D. 

 @Zak Dolak- first off, this is a fantastic "problem" to have. Youve built significant equity and redeploying it into investment real estate is extremely smart. But being an "investor" all starts now.....in the eval phase. Every penny you borrow to buy something else cost $$$ and its time value should be considered. Same with cash, other loans, and your time. 

HELOC's are great, and it is exactly how I built our portfolio (and still use it for that lol) . Banks are not created equal, but Credit unions are all pretty close in terms from our experience, especially those in the Philly-Allentown markets. Our team covers all of eastern PA, and we likely have some 1st hand experience in your area, especially being 40mins south of Atown.

Would be glad to talk thru some scenarios if you're looking for some input. Feel free to reach out, my info is in the profile here. Will send you a connection request also. 

Good luck!

[Alan Asriants]

Hey Zak, if you are taking out a HELOC I would really only use it for quick turn arounds like fix and flip or a cash out refi. In this market that is extremely hard to find. The good part about a heloc (you should verify this with your bank) is that you don't have to draw from it.

A home equity loan gives you an option of having fixed debt which is safer if you plan on using it to buy a long term rental buy and hold scenario. I would try to time it so that I have to funds ready right before I purchase the LTR for home equity loan scenario. 

Again I don't recommend using the HELOC to buy a LTR unless you can force appreciation heavily and refi out the HELOC.

Regardless having a HELOC out is a good idea so you can be your own bank and fund a flip or BRRRR.

I would go with the 300k as it might take time for me to find a deal and I would have more resources for bigger projects. 1% isn't too crazy... accesss to 100k is better IMO

[Jeff Roth]

Hi Zak-

Great question.

It sounds like your credit union is offering you a Home Equity Line of Credit as they do not expect principal payments and your primary bank is offering you a Home Equity Loan.

Personally, I don't like having to pay on an equity loan unless I use some of it and only pay on the part I use.

Although, this is a personal decision for you.

If you make investments that provide enough cashflow to pay the principal and interest to your primary bank on the equity loan it doesn't really matter to you as others are paying it.

Another consideration is the amount of dry powder available to invest. If this is important, the choice is clear.

However, if you invest using the BRRRR method, you should be able to pull money out of a property and use it again if you buy it well enough with equity. This reduces the need to have so much dry powder upfront as you will be reusing the money over and over again ideally.

All things considered, I prefer a flexible Home Equity Line of Credit with interest only payments on the portion that I use rather than making principal and interest payments on an amount of money that I may not need right away as I make investment choices over time. Some lenders even allow you to lock the used balance into a loan rather than having the rate float or adjust as many equity lines do. Something to consider if you would like to lock in an interest rate and payment.

To your success!

[Patrick Shep]

Quote from @Zak Dolak:

Hey guys,

Question, I want to get a HELOC. I've checked into my Credit Union and Primary bank. The CU offered me $200k, interest only or principle and interest payments. First year a rate of 5.24% and after that it's 1/2 point below prime for the life of the loan. $550 for an appraisal of my primary residence, no other fees.

My primary bank offered me $300k, principle and interest payments only, .09% above prime the life of the loan and an $82 dollar fee. 

Which would you guys choose? Some background, I am a new investor looking for my first property. I'm roughly 40 minutes south of Allentown, PA. My primary residence is paid off which is why I want to get a HELOC.

My plan is to buy a few LTR’s to start out. 

Thanks!

Zak D. 

Zak- I'm looking to do the same. As another poster mentioned, the best strategy would be to do a BRRR or use it to flip, so you can recycle $$. What bank and credit union are you looking at? I'm considering Navy Federal, at a 95% LTV.

[Randall Brooks]

Just went through this process myself and opted for a HELOC. I wanted access to the funds but didn't want to pay if I didn't use them... it gave me flexibility and allowed be to be patient when looking for deals. I like the idea of interest only payments as well, which my CU allows for 10 years before it amortizes. We just bought a house in cash using the HELOC and will fund most of the rehab with the HELOC as well. When rehab is finished and the house is rented I plan on getting a home equity loan on it to pay the HELOC off and be in a position again to find another deal.