Akron, OH · Member since 2015 · 27 posts · 7 votes
There is no question that I have to use OPM for this venture. My big question right now is HELOC vs. unsecured line of credit. The goal is to purchase a B/B+ rental that does not need copious amounts of repair. Should I use the HELOC for a down payment with conventional financing and the usual 20% down, 30-yr. loan? My thought is to use the HELOC for down payments on 2 or 3 properties. An unsecured line of credit makes sense for rehabbing and reselling, but not so much for rental property (in my mind, that is).
I do want to flip eventually, but not until I have a rental or two under my belt.
Investor · Rancho Cucamonga, CA · Member since 2008 · 1k+ posts · 684 votes
10y
Make sure to talk to your lender in advance. They may want you to draw the funds and season them in your bank account well before closing. Otherwise they are considered borrowed funds.
Akron, OH · Member since 2015 · 27 posts · 7 votes
10y
@Tom Tippmann, My definition of 100% financing may not be accurate. I am thinking of using the HELOC for the down payment or the entire purchase price. If down payment, then I would have to finance the balance of the purchase price with conventional financing. The reason I said that I would need to switch strategies is that I would rather have a 3/2 brick ranch in a B/B+ neighborhood. That would run me upwards of 70K at least. If I switch to 2/1, 2-story in a C/C+ neighborhood, I can purchase it using the HELOC only.
Residential Real Estate Broker · English, IN · Member since 2015 · 19 posts · 9 votes
10y
Hope I'm understanding you correctly~ If you can use a HELOC to purchase your property as a cash purchase, then do it. This does a couple things for you. Gives you great negotiating power when you offer all cash quick closing with no contingencies and the ability to go to the bank after 6 months and get a conventional loan on the property and with your money back out. Make sure that using your Heloc does not put in a bad debt to income ratio for obtaining the new loan.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
10y
Do you have any cash set aside? There is risk in 100 percent financing your first deal. Just don't want to see you get yourself in trouble. Coming up with $14k for a downpayment without risking your home should be doable. If not maybe you need to put some money in the bank and wait. Just my two cents. Good luck.
Yes. You understood correctly. My husband and I are in our primary residence. We purchased it in May 2003. It is valued at right around 200K. We're still working off of the original mortgage, no second mortgage or loans against it. My debt to income ratio is higher than I would like thanks to years in grad school. If I used the HELOC only, I would back my price down to around 25-30K, leaving some breathing room. Without it, I don't have many other funding options. I have the opportunity to obtain an unsecured line of credit, but would certainly need a co-signer and that just puts me out of my comfort zone.
Akron, OH · Member since 2015 · 27 posts · 7 votes
10y
Thank you @Joe Splitrock, I totally understand what you are saying. I agree 100%. Which is why I'm not rushing in guns blazing! We have equity in our home. I have little savings thanks, once again, to years in grad school. If only I had it to do over again regarding grad school, but what is done is done. Both of us have steady and secure employment (as can be today), but I am still working on my credit score. Years of grad school have done me no favors in this regard having to use credit cards for certain things. My credit is pretty good despite it all, but the debt to income is high.
Residential Real Estate Broker · English, IN · Member since 2015 · 19 posts · 9 votes
10y
That's good. Keep in mind when you buy the property of how much money you will need to obtain to fix the property and from where you will obtain it. Also how much you will need for holding costs i.e., insurance, future property taxes, monthly utility bills and know exactly what your are going to do with the property when you rehab it. Are you going to flip it and recoup your money quickly to build up capital for the next or rent it. If renting it, will it cash flow, after you refinance. My last deal I paid $30,000 cash for a bank repo. Since I now owned the property free and clear, my local bank gave me a $20,000 line of credit against the property for repairs. I paid a contractor for some work as well as family that needed a job and $16,000 and a lot of sweat equity from my husband and myself. I sold the property 8 months later (longer than I wanted due to illness) for $87,800, but we didn't close until month 11 due to hold up on the buyers financing. Still I planned for the holding costs and made a nice profit for my next investment. I'm now finishing up a deal to purchase 2 duplexes and have my first buy and hold properties! I'll be posting more about them once the deal is complete.
The point here is don't let anyone tell you that you can't make money on the smaller price point homes. If you know and study your market, it's totally doable and I believe a little less risky when you're just starting out! If you use my strategy you may not need a co-signer for the additional credit.
Akron, OH · Member since 2015 · 27 posts · 7 votes
10y
Cherie,
Thank you for the words of wisdom, and congratulations on your success!! I like the idea of a lower puchase point, a fix and flip to gain some capital to use for buy and hold investments. My biggest concern and why I did not start out thinking "flip" for my first deal is that I have a 2-hour+ commute each day, round trip. I wouldn't be able to actually check in on my property except for weekends. I love the idea of sweat equity, but can't actually do it due to the commute. The commute and hours spent away from my family are the driving force behind all of this.
I do like your plan, though. I will be following your journey here on BP, and hope to have my own success story soon!! You've given me some great advice, I really appreciate it.