getting a HELOC on investment property the Refi into DSCR

[Richard Pastor]

Hi all

I have a strategy question for you all. I have purchased a 4 plex with hard money as well as used my HELOC from primary residence. I did a cash out refi on another investment property. The investment property is now in a LLC. I used that money to pay off the HELOC. I will use the rest to pay off about half of the hard money loan for the 4 plex as well as finish the rehab. After the rehab the ARV of the 4 Plex should be around 650k and I will owe the hard money lender about 160k. What I would like to do is get a HELOC on the 4 Plex then Refi into a DSCR loan. The DSCR loan will likely be in my LLC. Due to the low amount I will owe to the hard money lender I want to get a HELOC to find and fund other deals but when I am not actively doing deals I want the cash flow. This is why I dont want to refi the max amount. Is this possible or am I just dreaming?

[Bryan Maddex]

Hey @Richard Pastor

First, lets address some incorrect information that is stated above. HELOCs are NOT sensitive to the 10 year treasury. It has ZERO impact on your heloc rates. Helocs are driven by the Prime Rate which is 3% above the Fed Discount Rate. Prime is currently 7.75% and likely to drop by 1-3% during this fed cut cycle over the next 1-3 years.  The Fed has already cut the Discount Rate twice, and there is over a 60% odds that they will cut again in December. (Google Fed Futures and click on the CME Group tracker). The fed is likely to cut a number of times next year, and possibly the year after as well. Your Heloc rates should fall for the next year or two. 

Next, as stated above, a DSCR loan cannot be in 2nd lien position. You should refinance your long term debt into a DSCR loan and then do a heloc on your property. With 700+ credit you should be able to get mid to high 6s if you pay a couple points and do a 5 year pre payment penalty. If you do a cash out refinance, you may be in the high 6s or low 7s.

Helocs are great for short term debt! Not so great for long term debt as you will pay Prime+4% or so on a heloc on your investment properties. I love having access to capital, that equals access to opportunity. 

Let me know if you want to talk in details about more strategies to utilize your equity and congrats on this property!