Commercial vs Personal Loans

[Bill Hughes]

Hi all, I am just getting started in REI. I have a reno just completed and tenants ready to move in. I had planned to BRRR his one. I also just purchased a second home for reno that might be more qualified for a flip. To finance the first reno and purchase the second, I used a combo of personal savings, no interest credit cards and a HELOC against my primary residence with a plan to consolidate through a refi of reno #1 once I had tenants in. I spoke to the bank yesterday and they are eager to help me with lending, but they are strongly suggesting that I continue with another HELOC (no closing costs and 2.99 rate with option to rate lock blocks of debt) against my primary residence since I have more than enough equity there. They're claiming that this would be easier and provide a better rate than a commercial loan (which would be required to refi reno #1 because it's not my primary residence). Something doesn't feel quite right to me about going deep into debt on my primary residence but, looking for some sage advice.

Options:
- Go with another HELOC on primary residence to fund second reno and consolidate debt
- push for a commercial loan on 1st reno

- Other?

Thanks in advance!

[Moshe H.]

Why do you need a commercial loan? It sounds like you are talking about a single family investment property. You should be able to get 30 year financing on that as a residential investment property and only pay something like .75%-1% above owner occupied rates. Commercial is necessary for 5+ units and usually comes with shorter terms, adjustable rates and/or balloons.

So, why take more equity out of your primary and put that on the line when you can get a loan backed by your investment property, which won't put your primary at risk (or at least less risk - depends on your entity structure).

You said you talked with a bank... maybe approach a broker, who will have access to many banks and can find you a better financial product. Refi the investment house, pay off the credit cards and as much of the HELOC as you would like, then take money out of your line again for the next house and repeat. Additionally, once you have the mortgage on your investment property secured, you can use the equity in your primary to purchase even more investment properties. According to the bank's strategy, you're tying up equity in your investment property and leaving it sitting there.

Hope that made some amount of sense. I don't know if it's "sage advice" but it's one guy's opinion :)