Should I use a HELOC or wait

Question

Hello all, this is my first post on Bigger Pockets and was just wondering if anyone has any advice for me.

I'm currently live in a SFH I bought in California back in 2015. I still have a mortgage on the house but I have quite a bit of equity in it. It still needs some work to be ready to rent. I've recently retired from the military so I have a small but steady income.

I feel like I have an advantage here by being in a house with so much equity but I'm not sure what to do. Should I wait and save some money for my next investment? or take out a Home Equity loan on my house, to either fix up my current home to rent out or invest in a different property? Or maybe something I haven't even thought of?

Any advice is greatly appreciated,

Matt

Danielle Jackson · Answer

Great advice @Jason Bohling. HELOC is a great option, just be careful with regard to the lender being able to reduce or even close your line at any given time. Good luck!

Bud Gaffney · Answer

@Matthew Bayne use a HELOC. Keep it going forward! LEVERAGE!

Justin Phillips · Answer

@Danielle Jackson Raises a great point. That's why I went with a very specialized 1st position Heloc on my property. It carries the staying power of that more similar to a conventional mortgage, and I don't pay for access to equity until I'm actually ready to use it. The one I have is tied to a zero balance sweep checking account, so in the meantime I can park savings and idle banking funds on my balance, saving me a ton of interest cost. When the deals are aplenty, I'll simply start writing checks from my line. Best of luck, you're definitely on the right track!

Danielle Jackson · Answer

@Jason Bohling you definitely did your homework when making the decision. That is all you can do. But unlike many who go the HELOC route, you asked the tough questions and made an educated decision.

Jason Bohling · Answer

@Danielle Jackson you make a great point on that.  This was actually something I asked about when narrowing down who I was going to go with.  The lender that I chose for my HELOC was one of those who did not close or reduce any HELOCs during The Great Recession and did not close or reduce any to-date during The COVID Crisis; I know that history doesn’t dictate the future, but given that the Financial Crisis of ‘08-‘11 was the most recent and most severe benchmark to go off of, coupled with our current situation, I feel about as confident as I think a person can be in regards to that.

Thanks for bringing that up because that is super-important.

Jason Bohling · Answer

@Johan Soto anytime.  If there’s anything else I can help with, let me know!

Johan Soto · Answer

@jason

@Jason Bohling Thank you Jason, i think i would go that route too.

Jason Bohling · Answer

@Matthew Bayne and @Johan Soto it really depends on your goals, short-term and long-term, as well as what strategy you want to use.  One of the biggest advantages/skills that we all learned in the military is looking at the second and third-order of consequences (If I make this decision, it can result in x, which can then result in y).  It helps a lot in reverse engineering from your goal.  So start at the end and work backwards.

I mention this because whether you cash out refinance or take a HELOC, you want your goals and process hammered out first (for the most part).  For example, say your goal is to do flips; a cash-out refinance might be better because you can take that money out and have a pot of money to deploy and not have to worry about the high fees of hard money or having to stick to a lender’s draw schedule, giving you more flexibility.  The trade-off is you are technically still paying interest as it’s now a higher mortgage amount on your primary residence.  If your strategy is going to be buy and hold BRRRR’s…in this case a HELOC may be appropriate because you can just draw what you need and only pay interest on what you draw instead of the whole pot (and HELOC’s typically are interest-only during the draw period, commonly 10 years).  This can function as your own ‘hard money loan’ that you have at your disposal at any time and you don’t need to reapply for, at significantly lower interest costs.  You repay it on the refinance and rinse and repeat.  The downside of a HELOC is the interest rate isn’t typically locked; as rates increase the rate on your HELOC might also, although it will most likely still be less than hard money.  I personally went the HELOC route; I can draw what I want, when I need it, and only pay interest on what I draw.  This seemed to fit my long and short-term goals the best.  Not sure if this helps or not.  Good luck to ya both!

Johan Soto · Answer

Hey Matt, i was just going to post something similar to your post. I am on the same boat as you, i have some equity in my primary home and i have some savings but i not sure what to do either, refinance or a heloc are my options. I would like to buy a few rentals with the equity and my savings but not sure which route to go.

Any advice,

Thank you.

Should I use a HELOC or wait

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