Heloc or refi to buy a rental?

Question

Christopher Silich · Answer

@Hiron Fernando, @Jd Martin Thanks for the feedback. Yes, I wasn't happy with this deal. I'm literally just getting started, and I've signed up for a few lists, and this one was the first one sent to me.

JD Martin · Answer

Once you pull your cash from the new place you're in the negative. There's nothing inherently wrong with your premise, you just need to find a better property. You'll get further with a cash deal, so if you could pull $100k from your primary, pay cash, let it season then refinance pull the cash back out of it and either put it back into your home and wait for the next deal (HELOCs usually give you 10 years) or roll it directly into another property.

Hiron Fernando · Answer

@Christopher Silich yes, I just look for stronger returns in terms of the rent to price ratio. If your cost basis is $115k (all in cost) and rents are $1095, that puts you at 0.95% rent to price ratio. All my properties are at 1.3% or higher, that's where I start to turn a profit. However, depends on many factors, run your numbers and check. These are just "rules of thumb."

Hiron Fernando · Answer

No problem. I just sent you the spreadsheet!

Try to use the spreadsheet as a baseline to get started, then understand where all the numbers comes from and customize it for your circumstance. It will help you get to know your numbers inside out, which is what you want!

Good luck! Let me know if I can help in any other way.

Christopher Silich · Answer

@Hiron Fernando That spreadsheet would be great. And any recommendations for wholesalers active in Atlanta and the Northern Suburbs?

EDIT: Nevermind the wholesaler recommendations, you're in Texas. I got you confused with another conversation with someone around here.

Hiron Fernando · Answer

@Christopher Silich that's good, you are doing the right thing. I would go check it out anyway, it will help you get a feel for what to look for. After looking at the property, come back and do a line by line repair estimate to figure out how much it will really cost! Then put your numbers into a spreadsheet and calculate your ROI. If you need, I can send you my spreadsheet that I use.

Good luck!

Hiron Fernando · Answer

Absolutely, that is the right idea. I would probably assume 70% to 75% LTV for your refi though. The other thing to remember is that even though you have $135k of equity there are fees associated with getting the HELOC and the bank will likely loan you 70% to 80% of your equity.

Finally, I hope that "deal" was just an example. Just from those numbers, it looks terrible (that's my opinion, at least).

Good luck!

Heloc or refi to buy a rental?

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