$200K HELOC - How to invest?

Question

Hello All,

I'm looking to use an open HELOC on my primary to fund the purchase of my first property. We have a $200k line with a 1.99% apr until July 2020. My initial thought was to BRRR the first property all in, including reno, at $150k. I feel comfortable at that price while trying to stay conservative on the first deal until my risk tolerance raises. If every goes correctly then this would allow me to pay back the HELOC and repeat.

How would you use a $200k HELOC?

Look forward to hearing your feedback.

Thanks!

John Warren · Answer

@Matt Hudson this is my fifth deal, so I am finally starting to be experienced enough to feel ok doing more "risky" deals. I feel like these types of deals are less risky once you have a team in place. For instance, I have the bank already lined up to take the hard money out so I know I only need the hard money for a few more months. I also have all the contractor relationships ready to go, so I won't need to scramble to find folks.

John Warren · Answer

@Matt Hudson I most recently used a HELOC as a down payment in combination with a hard money loan to purchase a six unit in Cicero, IL. This allowed me to pick the deal up, and once it is re positioned I will refinance the property to get rid of the hard money and hopefully most of the HELOC.

Bonnie Williams · Answer

Hi Matt,

First, where did you get the awesome interest rate on the HELOC??? (Sorry, I had to start selfish)

My business partner and I used our HELOCs to pay cash for our first two rent-ready properties. We financed the properties after closing in order to pay down the HELOCs and allow us to continue buying. Buying rent-ready does lock up more cash but, gave us the opportunity to learn how to be landlords.

House three was a complete reno. When purchased it was already down to studs with no electric or water in place. The project when 2 months over due date and I can't even admit here how far over budget it went. Thankfully, it appraised well and we found a renter willing to pay what we needed for the "new" house in the not so great neighborhood.

Having the first two properties working and collecting rents gave us huge piece of mind when the reno (which we were inexperienced with and didn't have the right team in place for) went awry. Of course, everyone's risk tolerance is different and mine is pretty low; starting rent-ready helped me gain a lot of confidence.

We have just hit the end of our first year of business and started with about the same HELOC funds available to us... but with higher interest. Know your numbers! Don't forget to account for insurance, interest, trash service, etc. Treat your tenants (customers) as if they are in a retail store you own and give them a good product. Vet them well, treat them well, and you will do well.

Bonnie

Matt Hudson · Answer

@John Warren That's great! Yes, I have 3-4 banks that said that they are able to cash-out refinance after 6 months with reasonable LTV's. Now I just have to keep making calls to banks to narrow it down to one with the best numbers.

I have some rehab experience, but I also have a good (and trustworthy) friend that is a GC. He built my detached 3 car garage and a 900 sqft apartment above and he did amazing. We now Airbnb the apartment and are netting just under $33k per year in income! Wish I could recreate that model!

Again, thank you for the advice.

Matt Hudson · Answer

@John Warren

Sounds awesome! These are the type of moves I'd like to make once I feel more comfortable. It is reassuring that you are doing something similar just on a larger scale. Thanks for your input!

Matt Hudson · Answer

@Bonnie Williams

Hey Bonnie - We got the 1.99% for 12 months from Synovus Bank as a promo. So hopefully I can find something soon to take advantage! I appreciate your story and advice.

$200K HELOC - How to invest?

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