Leveraging a trust held free & clear rental property

[Ken T.]

Hello BP!

My family and I have three properties (1 primary, 2 rental) held in one family trust. They trust my methods and are allowing me to leverage the equity to invest in real estate.

1) Primary property was purchased about 5 years ago for $700k with market value up to $1.4m.

2) 1st rental property was purchased about 5 years ago for $300k, current market value is about $800k if rehabbed to sell. Loan balance about $200k

3) 2nd rental property was purchased 25 years ago. Current market value is about $1m, should have very little/low loan balance.

My parents are allowing me to tap into one of the properties to fund my fix and flips, new rental acquisitions or private lending. How could I go about this to maximize the opportunity? I did some research online and just came out a bit more confused than going in. 

Possible scenario:

I have a friend who is currently funding a flip with hard money, 2 pts @ 10%. They would be open to replacing that loan with a more favorable loan from me. How would go about structuring their loan replacement? I want to be careful and not make any mistakes with my family's money.

Questions:

Should I be looking to refi or a HELOC?

Is it possible to get a HELOC against a rental property? From what a Chase Bk rep told me, this is a no.

Should I use this equity from private lending for other people's flips or should I be purchasing properties in my own name? 

What else am I missing before I dive head first with other people's money?

[Albert Bui]

Originally posted by @Ken T.:

Hello BP!

My family and I have three properties (1 primary, 2 rental) held in one family trust. They trust my methods and are allowing me to leverage the equity to invest in real estate.

1) Primary property was purchased about 5 years ago for $700k with market value up to $1.4m.

2) 1st rental property was purchased about 5 years ago for $300k, current market value is about $800k if rehabbed to sell. Loan balance about $200k

3) 2nd rental property was purchased 25 years ago. Current market value is about $1m, should have very little/low loan balance.

My parents are allowing me to tap into one of the properties to fund my fix and flips, new rental acquisitions or private lending. How could I go about this to maximize the opportunity? I did some research online and just came out a bit more confused than going in. 

Possible scenario:

I have a friend who is currently funding a flip with hard money, 2 pts @ 10%. They would be open to replacing that loan with a more favorable loan from me. How would go about structuring their loan replacement? I want to be careful and not make any mistakes with my family's money.

Questions:

Should I be looking to refi or a HELOC?

Is it possible to get a HELOC against a rental property? From what a Chase Bk rep told me, this is a no.

Should I use this equity from private lending for other people's flips or should I be purchasing properties in my own name? 

What else am I missing before I dive head first with other people's money?

HI Ken,

The primary you can go up to 85-90% LTV of the current appraisal value with interest only payments on a HELOC.

The rental's you can get HELOC's as well but only from local community, commercial, or credit unions like penfed.org up to 70-80% LTV around mid 5's.

You never go to big banks to ask them about HELOC's as the answer is predictably, NO.

HELOC is great if you're going to draw money out and replace it relatively quickly since you only pay interest when the funds are being used. The downside of course is that the rate is monthly variable so it can change from month to month. If the fed increases the fed funds which is directly linked to prime (usually 3.00% or 300 Basis points above fed funds) it will cause your HELOC monthly payment to go up immediately.

The upside of a fixed loan is that you get all of your money upfront and you lock in that segment of money for a fixed duration and term so there are no surprises in monthly payment. The downsides is that you will pay interest day one so hopefully you have a deal to deploy the money in so you can get traction right away.

Hope that helps on the strategy.