Using Equity to Reinvest

[Tony Thompson]

Had a few thoughts about using equity to reinvest.

1) Is it a good idea to reinvest equity from one property to purchase another? Generally I see this as getting your money (equity) to work harder.

2) Is there a limit as to how many times I can pull out equity of a property to reinvest?

Thanks

[Jon Holdman]

Yes, there currently appears to be a limit. That limit is zero. You'll have to do a refinance the property to get any equity out. As far as I can tell, HELOCs are non-existent for investment property. I'd sure like to hear if anyone's had any success on this.

And, it will be a cash out refi. Lenders are willing to do refis, but its more difficult if its cash out. You're going to be severely limited on LTVs, probably 70% max. Some folks are reported 75% or 80%. Its also going to be costly due to the costs of doing the refi.

[Josh Green]

jon is right on the money. i haven't heard of any lenders giving equities on NOO properties. getting a HELOC on your OO property though (or second home) is still possible.

[Tony Thompson]

Jon, do you/have you ever used equity to invest?

[Jon Holdman]

If you mean taking a HELOC on my primary residence and using that to invest, no. I know lots of folks do that, but my goal is to have my primary paid off. I don't consider that to be an investment in any way. Its a money pit that gives me a place to live. Plus, I don't want to depend on the success of my RE investments to have a place to live.

I did take out a 401k loan some time back to jump start the process. Some people say that's a bad idea. But that's investment money anyway, so I consider this just an alternative investment. I also got very lucky and pulled this chunk of money out before the stock market crash. No great insight there, just luck.

One of our local hard money (squishy money, she call's it) lenders will allow you to cross collateralize one property to buy another. Her normal guideline is 70% of purchase and 70% of rehab, so you have to come up with 30% of both somewhere else. If you have enough equity in another property, you can use that as collateral for the 30%. The LTVs and her lower than typical rates is why she says is "squishy".

[John Fedro]

Keep the equity in your home and buy some more cash-flowing properties using creative means!... stay away from the B word!.. (bank) :D

Refi/helocs are such a slippery slope!

Josh, cute pic!

Happy Investing
-John

[Mike V.]

I have used my HELOC on my personal residence for down payment and rehab cost on several investment properties and then refinanced them after a year (seasoning requirement). Yes there is risk there but if you buy at a big enough discount that risk is minimized. When you do refinance be prepared to pay more in points and/or rates since the banks will penalize you for a cash out refinance. For me this is still the cheaper way of doing it.
Also, I have looked high and low for anyone that will do a HELOC on investment property and so far no luck.

[Rich Schroeder]

Using a local bank and months and months of networking, I've been able to secure 100% LOC on my NOO rental. I have good credit, lots of assests, and the bank president owns hunderds of rentals so he knows what I'm doing.

[Paul Beauchemin]

Yes, it's possible. I've used HELOC's on 2 of my NOO properties to purchase/rehab new properties. Like Rich indicated - if you have done a lot of business with a local bank and have a good relationship with them it can be done.

[Eddie Ziv]

I too, used HELOC taken against my own residence to buy investment properties (Don't tell it to my banker, though ... :wink:) but I have two guest units on my residence's property that pays half of my mortgage.

[Steve Babiak]

In 2008, I was able to get HELOC on a NOO property through Wachovia Bank. Not sure if they are still doing that (especially since now they are part of Wells Fargo). At that time, Sovereign Bank was also willing to do a HELOC on NOO, but at much lower LTV.

[Eddie Ziv]

Here is another trick you may want to explore. If your property is vacant and you don't have a "declared" 2nd home, you can declare this one as a 2nd home and get a HELOC against it. I'm not sure how long you have to keep it vacant after you got the loan to make it legal though.

[Rich Schroeder]

Maybe someone with more experience can clarify...but I believe that if you're getting a LOC on a NOO property, it's not a HELOC, just a LOC. HELOC would be for your OO property. Correct?

[Eddie Ziv]

I don't think that the terminology is important here. The principle is the same. A line of credit secured by a real property. Sometime LOC is referred to PLOC which is unsecured Personal Line of Credit. If you have good income and good credit, you can go to your local Credit Union and get a PLOC which similar to a credit card (With similar interest rate).

[Stephen McKee]

The only line of credit I am aware of in my area is a blanket LOC. It's commercial credit and funding is made by small local banks primarily to people with a history. There's a different strategy I use. See the last part of this blog. http://www.biggerpockets.com/forums/12-starting-out/topics/32866-stupid-socal-misconceptions

[Darren Wagman]

how do you guys feel about a business line of credit to buy a property then refi when possible? and how long would it take to refi after getting one of these loans or a HML loan?

[N/A N/A]

i would not suggest you to invest in equity real estate investment is the better option.

[Eddie Ziv]

how do you guys feel about a business line of credit to buy a property then refi when possible? and how long would it take to refi after getting one of these loans or a HML loan?
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I wouldn't rule it out as long as you are aware of the risks involeved. As you may know,business line of credit is hard to build and easy to destroy. If you have an established business which rely on line of credit to survive (buying materials, providing maintenance, etc) then you can easily loose your business should something goes wrong with your real estate investment. You know your business, you know its needs and given the particulars of the potential real estate investment, you will have to weighs the risk.
Now, if the real state property is directly related to your business, such as rental venue of your business that becomes available for purchase, that could be a source of asset later on, but again it's all about risk managemnet.

[Scott Williams]

Reinvesting your equity is a great concept but seems tough to do these days. I have decent credit and a couple of homes with decent equity but have found refinancing to be pretty frustrating. If its too costly or troublesome to get access to your equity the question of wether its smart is a moot point.

I guess my point is make sure you have access to it before including it in your plans.