So I'm in a unique situation where I own a property worth around $213,000 that is paid off. No mortgage.
I also have access to about $30k cash through a bond that I can tap into. I have not yet purchased a rental property ever.
My question is this: should I be focusing on tapping into that 30k for down payment and rehab on a property? Or should I be looking for deals where I can use a HELOC to minimize my personal cash investment and improve cash on cash roi?
Thanks for your responses.
@Lukas Parsons
Also, whatever you do, avoid the large national banks for the HELOC. They tend to come back with lowball appraisals on HELOCs because many of them use a national “appraisal” company that does not select appropriate comps. That makes it not worth it even if they offer a 90% LTV.
The local banks and CUs will be more familiar with your area and comps.
@Lukas Parsons use the HELOC then refinance out in the BRRR and pay it off. Then/If you find another deal, then take the money right back out of the HELOC. No sense in paying interest until you have the next deal lined up. Of course, if you have another deal on the heal of the first, then roll it into that.
@Lukas Parsons I can't answer that without knowing your (or your teams) full financial situation. Even if i did... only do what you are comfortable doing. If you are going to lie awake worrying about how much you are leveraged... don't leverage yourself that much. Cash is king... if you burn through your cash and have nothing to rehab with, that's no good either.
@Anthony McEvoy
Thank you. That's exactly the perspective I was looking for. I wanted to hear both sides from someone with some experience in this.
I appreciate your feedback.
@Lukas Parsons
Consider your end game. You want buy and hold property's that are eventually paid off. I've been a fan of 80/20. Leverage 80 cash 20. Heloc is better then a loan because you can offer faster closings and gives you time for find the right property without costing you in the mean time.
@Lukas Parsons
I’m in a similar boat in terms of a paid off property. I’m in the process of pulling out a HELOC on it. Then, the line will be used for BRRRRing.
I’d keep the cash from bonds as reserves.
Also, make sure you shop around and understand the terms of the various HELOCs. Some are interest only, while others require both principal and interest. Some allow only 75-80% loan-to-value while others could go up to 90+. Also, do you occupy that property? Some lenders will not allow you to apply for a personal HELOC if you don’t occupy it but they may alllw a business HELOC. The business HELOC has more closing costs and annual maintenance fees. Their rates are also generally higher.
@Lukas Parsons
Also, whatever you do, avoid the large national banks for the HELOC. They tend to come back with lowball appraisals on HELOCs because many of them use a national “appraisal” company that does not select appropriate comps. That makes it not worth it even if they offer a 90% LTV.
The local banks and CUs will be more familiar with your area and comps.