Can I get a line of credit for Investment Properties?

Question

My wife and I own 3 properties, two of which are rental properties.  We are very new to real estate investing, but off to a good start.  We recently turned our primary residence into a rental, and have about $100k in equity in that property.  We bought a new primary residence where we have very little equity.  I've been told that I cannot get a line of credit on our rental properties-- is this true?  I listen to these podcasts, and it sounds to me that I can definitely get a line of credit on rental properties.  Your experience and insight would be greatly appreciated.  Thank you in advance!

Kerry Baird · Answer

I see so many comments in these forums that a HELOC on an investment property cannot be done.  Well, we do the impossible several times a year. :D

There are a number of places where we can get HELOCs on investment properties.  Nothing that you mentioned would trigger a typical due on sale clause.  Refinancing replaces the older first position mortgage with a newer one, while a HELOC leaves the original mortgage in place and adds another mortgage in second position.  A HELOC is a revolving type of instrument, and they are typically interest only.  This means that it acts somewhat like a credit card, as I can pay it off and use it again; the interest rate is quite low. My last HELOC (with PenFed) will adjust at the 10 year point, and become a regular amortizing second mortgage.

—As an aside, this occurs when a person has their name on the deed (which conveys ownership) and also on the mortgage.  Then they transfer the deed to another party, for example when selling “owner finance” while the mortgage references the original owner.  The bank can call the loan due, meaning it must be paid off or remortgaged, typically within 3 months.

Back to the original point, which is that TD Bank, Trustco Bank, US Bank and PenFed (only if you own fewer than 4 properties in your own name) and perhaps a small local-to-your-property lender, a credit union, advertise that they do HELOCs on investment property.

Brian G. · Answer

@Shaun Hood you can get an 80% LTV Heloc on a rental at Pen Fed if you have 3 properties or less including a primary and they are held in your name and not in an LLC. 12 year draw, variable rate tied to prime + 1%, no closing costs unless a physical site visit appraisal is needed or you close it within 2 years in which case they back charge you the origination fees that they waive when opening ($400-$600). You choose I/O or P/I payments.

Sean Autry · Answer

@Shaun Hood, as others have mentioned, Pentagon Federal Credit Union is the place to go.  I’m in process right now for a HELOC on my triplex

Shaun Hood · Answer

Thank you both for the feedback.  Yes, to be more clear, I want to get the equity out of a rental property, in order to start using the BRRRR method to accumulate properties faster.  It would probably be worth it to me to take a higher interest rate on the rental (previous primary residence), if I can get the cash to begin purchasing more properties.

I'm not sure what you mean by a "due on sale" clause, but I'm going to do some research on that.  Would you be able to expand on what this clause means, and the scenario where it might be something to look out for?  Is this clause typical with a cash out refinance?  Thank you!

Robert Dacus · Answer

I agree with Saravanan. Perhaps the terminology is a bit different since a  Line of Credit has a very specific meaning especially the way the interest is treated (accumulated.)

There might be other options to accomplish the same outcome As mentioned, a Cash Out Refi will generally allow up to 80% of the equity. My word of caution would be to consider if this will trigger a due on sale clause for you?  Also, the rate will usually be higher than on your former primary residence (now turned rental) if it was financed with some form of conventiaonal loan.

I lnow that one of my lenders will allow me to refi as a buisness loan (must have some form of corporate structure( C-corp, S-corp, LLC)  as long as the rents is $1 over the debt service of the loan.

Cordially,

Robert

Saravanan Saravanan · Answer

@Shaun Hood

Usually 2nd loan or LOC from bank or credit union; is bit difficult for investment property.

May be you can consider reffinance the original primary to get the equity out.  Then for the currrent primary; you can refinance and have a HELOC.  The payoff on the current primary would be the payout from the refinance of the original primary.

Can I get a line of credit for Investment Properties?

Most Popular Reply