How can I use the equity in my primary residence to get started?

[Bryan Galaz]

I have over $500k in equity with my primary residence and feel like I should be using it to get into real estate investing, but have no idea how to get started.  How can I use that equity to buy a rental property?

Thank you!

[Joe Homs]

@Bryan Galaz you can start by getting a HELOC (Farmers and Merchants Bank, Lake Forest) to see how much you can borrow. Before you pull the trigger on anything I would get some training or find a mentor in your area willing to show you the ropes. If you're looking for a rental in California, that would be a big ask for something that can cashflow. You may need to go out of state, which has its own problems. Check out some local meetup groups in your area and start learning.

Good Investing... 

[Bryan Galaz]

Quote from @Joe Homs:

@Bryan Galaz you can start by getting a HELOC (Farmers and Merchants Bank, Lake Forest) to see how much you can borrow. Before you pull the trigger on anything I would get some training or find a mentor in your area willing to show you the ropes. If you're looking for a rental in California, that would be a big ask for something that can cashflow. You may need to go out of state, which has its own problems. Check out some local meetup groups in your area and start learning.

Good Investing... 

I appreciate the response. I'll need to do some research about finding meetups in my area. I definitely am leaning toward out of state. The squatters rights laws in California scare me to death! A HELOC is what I was looking to do, but would that be used just as a down payment? Will banks accept that money from a HELOC as a down payment?

[Joe Homs]

@Bryan Galaz the purpose of a HELOC is to use that money to invest, but you must be disciplined with putting the money back and not spending it on a vacation or expensive car. As long as the money is green anyone will accept it.

Good Investing...

[Travis Biziorek]

Bryan, this is exactly how I got started.

I used some cash savings but largely leaned on my HELOC. The key here is to have a plan to pay that loan back.

I did this by utilizing the typical BRRRR method on homes in Detroit. I'd find off-market deals, do some cosmetic updates, and then refinance. All proceeds from the refi would go back to paying the HELOC.

Rinse/repeat...

My advice would be to start slow. If it goes well and you can stomach it, then scale up. And don't expect you'll get 100% of your capital out on each deal. It can definitely happen, but if you're leaving a bit of cash in each one that's much better than putting 25% down every time.

If you don't have a value-add strategy I don't see the point in using a HELOC. The whole idea is to use that money short-term.

[Bryan Galaz]

Quote from @Travis Biziorek:

Bryan, this is exactly how I got started.

I used some cash savings but largely leaned on my HELOC. The key here is to have a plan to pay that loan back.

I did this by utilizing the typical BRRRR method on homes in Detroit. I'd find off-market deals, do some cosmetic updates, and then refinance. All proceeds from the refi would go back to paying the HELOC.

Rinse/repeat...

My advice would be to start slow. If it goes well and you can stomach it, then scale up. And don't expect you'll get 100% of your capital out on each deal. It can definitely happen, but if you're leaving a bit of cash in each one that's much better than putting 25% down every time.

If you don't have a value-add strategy I don't see the point in using a HELOC. The whole idea is to use that money short-term.

Ah ok. Yeah I think I'd definitely need to use the BRRRR method as well. Thank you, that's good information.

[Mitch Messer]

Quote from @Bryan Galaz:

I have over $500k in equity with my primary residence and feel like I should be using it to get into real estate investing, but have no idea how to get started.  How can I use that equity to buy a rental property?

Thank you!

Hey Bryan, I applaud you for wanting to put your funds to work.

And, I 💯 agree that real estate is likely the best path forward.

My question is this: How certain are you that the best way for you to "get into real estate investing" is as an active investor?

Finding a property, negotiating a deal, securing a tenant, and managing a rental is seriously hard work!

And, I'm willing to bet that most landlords don't do much better than a 10% annual return on their funds. (Most probably do FAR worse...)

By contrast, private lenders are currently earning about 12% annualized interest on their money.

And, getting exactly ZERO calls at 2am from unhappy tenants!

Note: I'm not judging. I've been a rental property investor for 25 years.

I'm just wondering if you're aware of RE investment alternatives that might better suit your situation. 

[Bryan Galaz]

Quote from @Mitch Messer:

Quote from @Bryan Galaz:

I have over $500k in equity with my primary residence and feel like I should be using it to get into real estate investing, but have no idea how to get started.  How can I use that equity to buy a rental property?

Thank you!

Hey Bryan, I applaud you for wanting to put your funds to work.

And, I 💯 agree that real estate is likely the best path forward.

My question is this: How certain are you that the best way for you to "get into real estate investing" is as an active investor?

Finding a property, negotiating a deal, securing a tenant, and managing a rental is seriously hard work!

And, I'm willing to bet that most landlords don't do much better than a 10% annual return on their funds. (Most probably do FAR worse...)

By contrast, private lenders are currently earning about 12% annualized interest on their money.

And, getting exactly ZERO calls at 2am from unhappy tenants!

Note: I'm not judging. I've been a rental property investor for 25 years.

I'm just wondering if you're aware of RE investment alternatives that might better suit your situation. 

I never thought about investing in that way. How would that work with money coming from a HELOC?

[Mitch Messer]

Quote from @Bryan Galaz:

Quote from @Mitch Messer:

Quote from @Bryan Galaz:

I have over $500k in equity with my primary residence and feel like I should be using it to get into real estate investing, but have no idea how to get started.  How can I use that equity to buy a rental property?

Thank you!

Hey Bryan, I applaud you for wanting to put your funds to work.

And, I 💯 agree that real estate is likely the best path forward.

My question is this: How certain are you that the best way for you to "get into real estate investing" is as an active investor?

Finding a property, negotiating a deal, securing a tenant, and managing a rental is seriously hard work!

And, I'm willing to bet that most landlords don't do much better than a 10% annual return on their funds. (Most probably do FAR worse...)

By contrast, private lenders are currently earning about 12% annualized interest on their money.

And, getting exactly ZERO calls at 2am from unhappy tenants!

Note: I'm not judging. I've been a rental property investor for 25 years.

I'm just wondering if you're aware of RE investment alternatives that might better suit your situation. 

I never thought about investing in that way. How would that work with money coming from a HELOC?

Bryan, it would be quite similar to what you were planning. You'd access the HELOC funds and then lend them to an investor at an agreed-upon rate for an agreed-upon period of time. (There's obviously paperwork and structure and closings, but that's the gist.)

Also, it doesn't have to be either/or. You could invest some of your funds into a direct investment, and some you could put to work indirectly as a private lender.

To be clear, I'm not advocating that you should do any of this. I was just wondering if you'd even considered this option!

I often see folks jump straight to being an active investor, and I know just how much work that can be, often for disappointing financial rewards.

It's generally better to be the bank!

[Drew Sygit]

@Bryan Galaz turning your equity into funds is the easy part!

What do you plan to invest in?

Rental? Flips?

Where?

If rentals, Class A, B, C or D?

How are you going to compensate for your lack of experience?

[Tanner Lewis]

Hey Bryan, you can either get a HELOC or cash-out refinance. Then, depending on your strategy, you can use those funds on an investment property with a DSCR or hard money loan.

[Tim Ryan]

HELOC. Then invest out-of-state. At my Meetups I show investors where and how to invest out of state (specifically when being from California). You'll need to start learning for sure. Find a Meetup near you or if you are willing to drive up to the Pasadena area DM me.

[Bryan Galaz]

Quote from @Tim Ryan:

HELOC. Then invest out-of-state. At my Meetups I show investors where and how to invest out of state (specifically when being from California). You'll need to start learning for sure. Find a Meetup near you or if you are willing to drive up to the Pasadena area DM me.

 Pasadena isn't too far, I'm in Anaheim.  When do you guys meet up?

[John Morgan]

@Bryan Galaz

I bought my first two houses with a HELOC from my house. I paid cash for them. And eventually did cash out refis on those properties to scale up big. I also did a cash out refi on my primary a couple years later to use the cash and buy 3 more houses. Since then I've bought 14 houses from equity just sitting in properties doing absolutely nothing for me. My cash flow goes way up after I tap into equity and buy more and more houses with zero out of pocket money. This has been the way I've been able to buy 29 rental houses basically for free with no out of pocket money. Tap that equity and make much more cash flow. Refi til you die! This is how you can build generational wealth without using your own money. Good luck!

[Henry Lazerow]

I have a HELOC on my 4 unit and used it to help fund two other BRRR projects. The rates are high/variable though so you need to be careful/conservative. I wouldn't go pulling 100% of it but use it as half/half vs my cash for projects that way if the project doesn't work perfect I can still pay off the HELOC in full at the end.

[Nicholas L.]

@Bryan Galaz

If all you have is that equity - then don't. A HELOC will have a high interest rate - it's "expensive money" - and it will put a ton of pressure on your investment - you will be losing money every month unless it is an absolute home run.

Yes, there are issues in California, but if you just buy a random property in a random state thousands of miles away... that is highly risky too.  If you want to invest out of state you need to actually learn a market and build a team.

https://www.biggerpockets.com/forums/48/topics/1137397-balti...

https://www.biggerpockets.com/forums/48/topics/1160450-run-i...

https://www.biggerpockets.com/forums/48/topics/1201707-drown...

[Ross Hayes]

Quote from @John Morgan:

@Bryan Galaz

I bought my first two houses with a HELOC from my house. I paid cash for them. And eventually did cash out refis on those properties to scale up big. I also did a cash out refi on my primary a couple years later to use the cash and buy 3 more houses. Since then I've bought 14 houses from equity just sitting in properties doing absolutely nothing for me. My cash flow goes way up after I tap into equity and buy more and more houses with zero out of pocket money. This has been the way I've been able to buy 29 rental houses basically for free with no out of pocket money. Tap that equity and make much more cash flow. Refi til you die! This is how you can build generational wealth without using your own money. Good luck!

Am I tracking that your strategy was using a HELOC from your primary residence to fund "cash" purchases on your first two properties?  Then, with equity on those two properties (since there was no mortgage directly against them due to the HELOC funding them), you did cash our refinances to go purchase additional properties?  Essentially rolling that equity from each property into the next one, with a cash out refinance each time?  Thanks for the context.

[John Morgan]

Quote from @Ross Hayes:

Quote from @John Morgan:

@Bryan Galaz

I bought my first two houses with a HELOC from my house. I paid cash for them. And eventually did cash out refis on those properties to scale up big. I also did a cash out refi on my primary a couple years later to use the cash and buy 3 more houses. Since then I've bought 14 houses from equity just sitting in properties doing absolutely nothing for me. My cash flow goes way up after I tap into equity and buy more and more houses with zero out of pocket money. This has been the way I've been able to buy 29 rental houses basically for free with no out of pocket money. Tap that equity and make much more cash flow. Refi til you die! This is how you can build generational wealth without using your own money. Good luck!

Am I tracking that your strategy was using a HELOC from your primary residence to fund "cash" purchases on your first two properties?  Then, with equity on those two properties (since there was no mortgage directly against them due to the HELOC funding them), you did cash our refinances to go purchase additional properties?  Essentially rolling that equity from each property into the next one, with a cash out refinance each time?  Thanks for the context.

Yep, I used my HELOC to help me pay cash for my first two rentals. 3 years later I did a cash out refi on one of them and got all my cash back plus an extra 10k. I took that cash and BRRRR’d 3 houses with the cash  without using any of my own money. I sold the other property 18 months later and did a 1031 exchange to buy a nicer SFR. A couple years later, I did a cash out refi on it and pulled out 133k to play with. I bought 3 cash flowing houses with the cash. 

So my initial HELOC I used (about 60k total used from my HELOC between the two rentals) to buy my first two rentals turned into 8 houses that cash flow me $6200/month after all my expenses now. Some people say don’t do it, but I paid off my 60k I used from my HELOC 5 years ago with my Cashflow and I profit $6200/month and ended up with 8 houses from my first two houses I used from the HELOC. So don’t rule out using a HELOC to buy properties! I’m a fan of it despite what others say.  Consider 401k loans and 0% interest for a year credit card loans too. Or basic lines of credit from banks for around 11% which I do as well. I use OPM then pay it back with the cash flow. Then it’s all infinite cashflow once I use the rental income to pay off these temporary loans. Then I repeat and keep scaling up with zero out of pocket $. 

[Ross Hayes]

Quote from @John Morgan:

Quote from @Ross Hayes:

Quote from @John Morgan:

@Bryan Galaz

I bought my first two houses with a HELOC from my house. I paid cash for them. And eventually did cash out refis on those properties to scale up big. I also did a cash out refi on my primary a couple years later to use the cash and buy 3 more houses. Since then I've bought 14 houses from equity just sitting in properties doing absolutely nothing for me. My cash flow goes way up after I tap into equity and buy more and more houses with zero out of pocket money. This has been the way I've been able to buy 29 rental houses basically for free with no out of pocket money. Tap that equity and make much more cash flow. Refi til you die! This is how you can build generational wealth without using your own money. Good luck!

Am I tracking that your strategy was using a HELOC from your primary residence to fund "cash" purchases on your first two properties?  Then, with equity on those two properties (since there was no mortgage directly against them due to the HELOC funding them), you did cash our refinances to go purchase additional properties?  Essentially rolling that equity from each property into the next one, with a cash out refinance each time?  Thanks for the context.

Yep, I used my HELOC to help me pay cash for my first two rentals. 3 years later I did a cash out refi on one of them and got all my cash back plus an extra 10k. I took that cash and BRRRR’d 3 houses with the cash  without using any of my own money. I sold the other property 18 months later and did a 1031 exchange to buy a nicer SFR. A couple years later, I did a cash out refi on it and pulled out 133k to play with. I bought 3 cash flowing houses with the cash. 

So my initial HELOC I used (about 60k total used from my HELOC between the two rentals) to buy my first two rentals turned into 8 houses that cash flow me $6200/month after all my expenses now. Some people say don’t do it, but I paid off my 60k I used from my HELOC 5 years ago with my Cashflow and I profit $6200/month and ended up with 8 houses from my first two houses I used from the HELOC. So don’t rule out using a HELOC to buy properties! I’m a fan of it despite what others say.  Consider 401k loans and 0% interest for a year credit card loans too. Or basic lines of credit from banks for around 11% which I do as well. I use OPM then pay it back with the cash flow. Then it’s all infinite cashflow once I use the rental income to pay off these temporary loans. Then I repeat and keep scaling up with zero out of pocket $. 

Thank you for sharing.  Great work - makes sense.

I used a HELOC to help fund the purchase of our first SFH LTR, in conjunction with actual cash. I've just ran my own aggressive amortization schedule to help pay down with the rental income. And just recently, we did a cash out refinance on that first property to purchase a second SFH LTR in cash, with no cash out of our pocket on the purchase. It has worked well, and for the concerns around variable rates on a HELOC, we account for that risk/fluctuation in our deal analysis. We know have all equity on paper in the new property to continue to scale.

[Rhealaine Sayson]

Hi Bryan! With $500k in equity in your home, you have a few ways to use it for buying rental properties. You could get a Home Equity Line of Credit (HELOC), a cash-out refinance, or a home equity loan. Each option lets you borrow money against your home's value. It's best to talk to a mortgage professional to see which choice works best for you. Once you get the funds, you can use them for a down payment or even buy a rental property outright. Good luck with your investing!