Heloc on a rental property

[Matthew Laubach]

Is there any banks offering a HELOC on a rental property? I moved in with my fiancé and have renters in my house, and trying to get a heloc for a down payment to get to a second rental investment. Any suggestions are appreciated, I'm new to the forums so apologize if there was already a thread on this

[Jay Hurst]

Quote from @Matthew Laubach:

Is there any banks offering a HELOC on a rental property? I moved in with my fiancé and have renters in my house, and trying to get a heloc for a down payment to get to a second rental investment. Any suggestions are appreciated, I'm new to the forums so apologize if there was already a thread on this

In my opinion, you are asking about the wrong product. You would want an closed end second mortgage instead of a HELOC for a long term cash use like a down payment. A HELOC should be used for short term cash needs.

[Matthew Laubach]

Thank you Jay I’ll do my research on that! Never heard of it! 

[Ko Kashiwagi]

Hi Matthew,

What would be the exit strategy to exit out of a HELOC if you are putting it on a rental? Typically HELOCs are used for short term purposes, so it would make more sense if you are doing a flip. If there is no exist strategy, it would make more sense to do a HELOAN or a refinance.

[John Mason]

https://loanstreamwholesale.com/closed-end-seconds/#:~:text=Closed%2DEnd%20Second%20Mortgages%20(CES,once%20for%20whatever%20they%20need.

[Zach Bosson]

I'd argue that both HELOCs and CES have good utilization for both short/long term plays. We offer both from a variety of outlets(and on investment properties which is rare), here's some examples of how recent clients have used a CES/HELOC for both long and short term purposes.

That all said, for your purposes I'd want to dive deeper into your plans to repay before advising one way or another. I personally use my HELOC for down payments on homes and then quickly pay if off, this allows me to always have a liquid down payment source on hand. But for a one and done? This makes less sense.

Examples of short and long term uses, HELOCs & CES.

HELOC(Short Term)

- Use a portion or all of the HELOC now knowing you're going to pay down quickly, which eliminates payments and interest.

HELOC(Long Term)

- Many HELOCs have 10 year interest only draw periods, while CES have a P&I payment, HELOCs may have less impact on cashflow over the long term.

- Perhaps you think rates are going to move lower. HELOCs have a variable interest rate, allowing you to take advantage of declining rates without refinancing. 

- Perhaps you want to use it multiple times over a long period of time. Pay it down, draw it up, pay it down etc

CES(Short-term)

- Perhaps you know exactly how much cash you need, and you need all of what's available, say to remodel before selling. CES often have an initial rate that is lower than a HELOC. Take out a lower(comparatively) rate CES for 6 months with plans of paying if off in full say after selling the asset.

CES(Long-term)

- Perhaps you're risk averse, and want a fixed rate long term, with consistent payments and don't have plans to pay off the note.