Based on the newbie introduction - others wisely recommended that I line up my finances before property. So, I have one rental which previously had been my primary residence.
I have been in contact with Navy Federal Credit Union who will allow HELOC or Fixed Equity Loan (FEL) upto 70% on the property. This will provide me the adequate capital for another rental property.
Based on my understanding, the key difference between Heloc or FEL is that with FEL it's a fixed interest rate on amount withdrawn whereas HELOC you have option to draw down as necessary but it's variable interest rate. If I am using the funds for downpayment, I think a FEL would be better since the rate would be fixed. Would you agree or am I missing something? Should I consider HELOC instead?
Rental Property Investor · Rancho Cucamonga, CA · Member since 2019 · 8 posts · 1 vote
7y
@Matthew Cyriac
Hi Matthew, newbie here too but here is my take.
Depends entirely on your rental property strategy. Buy and hold on a cash flow play, very little appreciation. I can see how the FEL might be more attractive with the fixed rate.
BRRRR strategy or high appreciation strategy with a refinance where you're getting your money back relatively fast then HELOC since you can just reuse those funds whereas when you pay back the FEL you have to get another one for your next deal and you're paying interest on the FEL inbetween deals.
Yes, I am planning for buy & hold with no planned appreciation (appreciation will be a welcome bonus :)). You do bring up a good question that I need to check if I can have multiple FEL, as long as I am below the 70% threshold that Navy Federal has. Also, I found out that PenFed will let you go up to 80% but they only have a HELOC.
@Matthew Cyriac
Hi Matthew, newbie here too but here is my take.
Depends entirely on your rental property strategy. Buy and hold on a cash flow play, very little appreciation. I can see how the FEL might be more attractive with the fixed rate.
BRRRR strategy or high appreciation strategy with a refinance where you're getting your money back relatively fast then HELOC since you can just reuse those funds whereas when you pay back the FEL you have to get another one for your next deal and you're paying interest on the FEL inbetween deals.