Rental Property Investor · Los Angeles · Member since 2019 · 284 posts · 184 votes
Ok.. so I was able to pull $900k+ worth of HELOCs between 2 of my 5 properties. I decided to temporarily leverage some of that equity into a property Im flipping (ground-up/new construction) here in Los Angeles. The plan is to pay it back once the property sells with some profit. So now, Im wondering what other investments I can leverage it into next...
What would you do if you had access to $900k+ HELOC?! I'd like to hear some ideas or other strategies.... and why you strongly feel about it.
just make sure U read the fine print on those helocs IE the provision to call or freeze them ..
if I was using them for reposition ( which is what I would do not long term buy hold down payments to high of leverage in the top of the cycle).. then I would evergreen the amount you need to finish the project.
in the last downturn I made a lot of rescue loans to flippers who had used their helocs to do their rehabs .. when the helocs got LOCKED they were stuck.. so either have cash in the bank or if its a 100k project take the entire 100k out day one so you know u have funds to finish it.. you wont know your heloc is frozen until after the fact IE you go to access it and it wont work..
@Alvin Uy I'll be the one to say it. It's beyond tough to effectively deploy capital now. I'd only invest in things which you both have a healthy margin of safety AND can add value through repairs. That margin of safety includes cash flow that more than covers your HELOC payments in case things go south. That margin of safety makes it so if real estate goes down 20% you could still sell the property and walk away relatively unscathed. Tough to do. If I were you I'd be trying to JV with guys in the midwest or southeast on multi family. I've got connections there PM me if interested.
By JV... do you mean Joint Venture for flips or long term hold properties? Which states?
Joint venture for commercial real estate projects. I have connections in KC area where they do value add and refi out after ~18 months returning your money. Still risky, but the return is commensurate.
Very good. I know people are doing it. Lots, pay off your Heloc and then do it again
so you can keep turning, or build up a reserve from it, pay it off then use your own cash. Great way to invest without picking up a hammer. So long as your $$ is secured by a mortgage and note you should be in good shape.
Of course as Always, do your due diligence to make sure you are doing what is right for you.
I have access to 7 figures between my 2 two family homes in NYC that are paid off but i wouldn't touch that money. HELOC can be risky in case they call the loan and lock me out without warning. Besides, i couldn't wait for the day the houses were paid off so wouldn't want to start again owing money on the same home. Id use my own cash and a new mortgage.
The way I have been using my Helocs is to pay off existing debt and make new acquisitions. People have talked about it here before "velocity banking". Basically take a large chunk of your Heloc to pay down an existing debt and use your existing cashflow to pay back the heloc. Rinse and repeat. I do worry about the freeze on funds, but the helocs are in 1st lien position so not sure if the bank would freeze these or not. You did mention DTI being a concern so by using the helocs to pay down existing debt that would help to get your DTI lower and also build net worth and equity. The acquisition side is just to use for down payments on single families or pay cash. You can then use delayed financing or regular refi to pay heloc down and do it again. Hope that helps.
The way I have been using my Helocs is to pay off existing debt and make new acquisitions. People have talked about it here before "velocity banking". Basically take a large chunk of your Heloc to pay down an existing debt and use your existing cashflow to pay back the heloc. Rinse and repeat. I do worry about the freeze on funds, but the helocs are in 1st lien position so not sure if the bank would freeze these or not. You did mention DTI being a concern so by using the helocs to pay down existing debt that would help to get your DTI lower and also build net worth and equity. The acquisition side is just to use for down payments on single families or pay cash. You can then use delayed financing or regular refi to pay heloc down and do it again. Hope that helps.
Yes. Im aware of this accelerated loan paydown “velocity banking” you mentioned. Im looking into it..
im also using some funds to flip now to generate some quick cash to use for long term holds.
The thing I like about the accelerated loan pay down. Is that you don't have to speculate on a flip or other investment making a return. You know exactly what your return is by paying down or off the debt. So that is an investment in it self. Its probably not as attractive as a new project but it is a way to accelerate what you are trying to do.
Hmmm. Im still looking into this.... im not sure this is the best application or strategy for me. Because one of my HELOCs are from my investment properties with rates at 7.25% and with potential rising interest rates, i feel like i need a more short time strategy.
Im no mathematician so, im not sure it will work for me.
@Alvin Uy - Do your other business ventures require that you live in California? If not, you might consider selling your primary and moving to a state with no state income tax, like Nevada. Sounds like flipping is one of the things you do really well, and you would save a significant amount of profits over time. The proceeds from the sale of your primary would be in cash form and you wouldn't have to pay HELOC interest to do flips.
Great suggestion. My primary will easily cashflow if I rent it out so I cant imagine selling it. My other business ventures are all in CA and still rely on my presence, unfortunately. But most importantly, It would also be difficult to uproot my family, which is the bigger decision. California weather is hard to beat... not sure my wife would be happy living in NV. Happy wife happy life. Lol!
@Alvin Uy Buy Cash flowing, Apartment and multi families in Detroit and the surrounding areas, Rehab raise rent and repeat. My partner Darren is in Hollywood Hills Near Runyon Canyon that’s what we have been doing and some single family homes as well that have an equity grab. Seems to be working pretty well
Investing in MFs and larger units is definitely something that interests me... I own and manage a 4plex in Los Angeles.
Investing OOS was something I've recently come to consider. I am very very open to it after reading David Greene's book. OOS BRRRR strategy, however, worries me a bit because I know what goes into rehab projects... A LOT can go wrong. I know because I have extensive hands on experience as a rehabber for my own properties... and properties I flip. I have to admit... that component of it is still a bit apprehensive to me.
Coincidently, Detroit/MI has come up many times... but I have read several posts and discussions lately that Detroit is no longer a good area to invest in.... that that ship had sailed... Home price bumps are due to investor speculation from OOS investors. I've seen this kinds of discussions during the last cycle before the last bubble crashed ...and typically these are areas that were talked about like this were the ones hardest hit in the event of a crash. Of course, Im not saying everything I've read is right...but I do have to take these things with a grain of salt. (I've heard the same about California being a terrible place to invest in but here I am with a $900k equity to play with.LOL).
Not at all knocking on Detroit... that's not my intention. I would like to learn more from someone like you with boots on the ground. But I do have to be cautious about where to invest my money wisely this late in the cycle. I like cashflow, but I prefer not to invest in purely cash flowing properties that do not have much potential for appreciation. I don't want to invest in D class areas either. That just does not fall in line with my long term strategy as a whole.
That said, I would love to hear more about your investment strategies in Detroit. Perhaps, you can hook me up with your friend, Darren.
Downtown yes the ship has sailed. There are many areas and neighborhoods surrounding downtown which are now becoming part of downtown and new developments. The C’s are turning to B’s, B’s to A’s etc etc. There are many strategies we employ with location being number 1. Local demographics, upcoming Developments, diversification, where the crowds are turning over or already have turned over from gangbangers and squatters to Hip millennials so on and so forth. All of the blight has been or is currently being demolished. These are just a few things we consider and look for before we even bother doing research on the property itself.
There are several desirable areas in Detroit that are well worth the investment with proper planning, due diligence and management from start to finish.
I still believe it’s not too late in “this cycle” the key is in the Buy. We try to Find distressed landlords or property owners who are no longer able to play ball or they may just be tired or in need.
Off market deals are usually the way to go for the best product. If it’s listed we negotiate and bust that number down as low as possible with good reasoning. 9 times out 10 Detroit is a Value Add/ Rehab play if you want the best bang for your buck and to change the crowd in your building.
Having extensive rehab experience should be beneficial to you and your team when analyzing properties. We usually look for all brick with good bones, structure, layout and Mechanical’s that only needs Cosmetical repairs and updating of things like Vanities, carpet, paint and fixtures etc.
D neighborhoods in Detroit are all over the place and we stay away from them. Occasionally I’ll buy some all brick homes with good roofs for a couple grand a piece that have atleast a couple years left before they go to tax foreclosure. Then I empty/ clean them out, bleach or spray killz all over, board them up, keep the grass cut and wait for the next season and flip them for 20k+ Or often times hold and rehab if the crowd has changed.
Darren and couple of his buddies over there have been wanting to do these with me but I usually keep them to myself because if it fails on me then oh well I will atleast get my money back at the price I buy. If it fails on him then I wouldn’t want it to jeopardize everything else going on for our long term goals and deals over a house I pulled out of the scrap yard lol.
I like commercial multi units because If you partner with people who’s long term goals in real estate investing are aligned with yours and they share common interest or equity in the deal it remains this way from start to finish.
I'm a newbie, but I think HELOCs are a good funding source for the BRRRR strategy. If you can find a deal where the cash out from refi pays back the HELOC funds used in the BR, I'd say that would be a good use. The key is that you are using the HELOC for a short term loan, while setting yourself up to present a cash offer to the seller.
"They", is the LA County Planning Dept. My rehab is in the unincorporated area of the county. In LA County setbacks DO NOT matter on a garage converted to an ADU, that is a fact because my property is proof. Maybe the City of LA overrides this but the state of California sets the conditions for ADU's and separate building departments can modify them.
I'm in the Antelope Valley. You can find foreclosures here and in Bakersfield. Still close enough to manage. Investing in the LA City area is very expensive. I don't see any way to cash flow there without putting in a lot of up front on the down payment. Expand your range to include North LA County and Bakersfield, you'll be surprised at the numbers. You can make a profit in these areas. Granted, more and more investors are discovering these areas so prices are going up so be ready when they ask for your highest and best to add a little more than is comfortable to spend.
@Tami DuBose DM me if interested in exploring something. I got the boots on the ground and a great team. The only limitation right now is reasonable financing.
Whatever you do, be sure that you’re preparing for the recession. Most lines got slashed by a good margin or frozen in last one. That $900k line could very easy drop to $400k or less when things hit the fan next time.
I would look for cash flowing properties in the market that I’m investing in.Or I would just scale my portfolio into a much larger units or properties.
@Alvin Uy cash is cheap. I would cash out refi to take advantage of the low interest rates. Let your tenants pay down the new loans. Use the cash and find a sound real estate investment that meets your current needs / criteria.
Thanks for the input... yes, i thought about cash out refi option for the longest time.
But since all my mortgage 1st loans interest rates are in the low to mid 3% range. I chose not to touch any of them and decide to leverage the equity through HELOC would be the smarter play for me. I just need to make sure I dont over-leverage.
Yes, existing structure/ garage to ADU conversion is the smarter play when it comes to ADU because those are grandfathered in. I was referring to addition of new ADU structures because Ive ran into those rear setback restrictions in my some of my flips and ground-up builds... unless theres an alley in the back of the lot. Ive also ran into issues being too close to power/utility pole in the rear being a restriction which means no livable area within 15ft and no second stories.. So it all depends on each lot actually.
Quick questions...
Are u able to BRRRR all your money out and cashflow in the areas your investing in?
