No HELOC in Texas for real estate investment??

Question

Hello everyone im a newbie just getting started. Or trying to get started. Im trying to find ways to fund some of my deals I want to do. I bought a house that was a fixer upper and have about $66,000 in equity. I recently figured out that I can not take a HELOC out on the house to go invest that in rentals. In the great state of Texas. Is this true and are there other options of tapping into this equity to start investing??

Andrew Postell · Answer

@Tyler Smith sorry I'm a little late here.  I'm tagging @Reid Sullivan here too since he in also in Texas.  There is a LOT of confusion to this subject.  And I mean A LOT.  So I'll try to tackle this one at a time.

First, you can 100%, absolutely, without a doubt, receive a Line of Credit on an investment property in Texas.

Second, the $$ amount of equity you have it not as important as the %% of equity.  Meaning, if $60,000 represents 10% equity...then you will not be able to get any further loans on that property.  If it represents 25% equity....likely the same story.  Generally speaking, you will likely be required to leave 25% equity in the property with a Line of Credit on an investment property.

Also, Bigger Pockets does have a pretty active Texas forum and this is one of the more common questions we get there.  Feel free to follow that forum as it has some pretty good locals that know a thing or two.  Usually when I field this answer out in the general forums it about finding this in ANY state so I'll answer it for Texas and for everyone else just in case it get's researched by others.

1. Texas - Cash out loans of any type are pretty challenging here in Texas.  Because of this many lenders won't do these loans at all.  Finding a lender that does investment property "Lines of Credit" is hard in any state...but here it's even harder.  I know 3 that write them locally in DFW...and only one of those will do it state wide.  But am certainly willing to share any information if you just PM me.  No problem.  And just in case, none of the lenders above will lend a Line of Credit on an investment property in Texas.

2. For everyone else....a small, local lender will be your HIGHEST probability of success when trying to find "Line of Credit" lenders on investment properties. The unfortunate thing here is that investment properties foreclose at a higher rate than primary homes so many banks just don't want the exposure to this. But it is 100% possible to find but you have to put in the time or at least know someone that ALREADY has the connection. Here's my 3 suggestions:

• Post in the Bigger Pockets STATE forum that you are looking in. There are usually some good, local investors that monitor those forums. Maybe they already have a suggestion or recommendation for you? Certainly try there.
• Visit your local REI groups. There are many groups that meet across the country. Some post here on Bigger Pockets. Many post on meetup.com. Networking is always a great practice and you never know who you might meet there and what good information they have to share. Would certainly recommend visiting if one is close to you.
• Calling - and then there's this option. Which is what I had to do. I had to call about 200 lenders (no exaggeration) to learn of 4 lenders who did this and I have some tips. First, when calling banks target the smallest most community based banks you can first. If you have never heard of them, and they have one location - that's a good candidate. No big, national, publicly traded banks will do this loan type. Second, try to ask for "LINES OF CREDIT" instead of "HELOC". I know it sounds like I'm splitting hairs but some banks write HELOCs in their residential department....which won't write Investment Properties. And that residential department will often not speak to the commercial department. So they'll just say "sorry, we don't do it"....not even knowing that they really do! So if you ask for a "line of credit on an investment property" that should get you to the COMMERCIAL division. That's the section of the bank we want. Now, most of these smaller banks may only have 12 employees or so. So don't get frustrated if they don't return your call or aren't in the office. Just call back and be friendly. Maybe play dumb a little "I don't know if I'm in the right place..." "I'm sorry to disturb you, you may not be the right person for this....", etc. Maybe someone can get you to the right person. Again, be prepared to call A LOT

Anyway, I hope some of this helps.  Feel free to post more questions if you need it.  Thanks!

Jan Kerr · Answer

@Tyler Smith Hi Tyler, Welcome to the forums! This is true for most banks, nationwide. They will only do HELOC loans on your primary residence. As the others have mentioned above, if the loan you have on the house now has been "seasoned", meaning you have made payments for at least 6 months to a year, you can refinance it up to 80% of it's appraisal value and take cash out for investing. Conventional refinancing rarely allows you to take more than 80% out. They insist on leaving some equity in the property. If your original loan is less than 4-5 years old, it may have a pre-payment penalty written into the mortgage. You may have to pay that penalty out of the cash out in order to refinance it. Read your document to make sure you know what it will cost you. Some private or hard money lenders will cross collateralize and allow you to use the equity in that property to secure a loan from them, but I do not recommend it. I always want the investment property I am buying to secure it's own financing with its own equity. A combination of private or seller financing and hard money could be all you need besides a little of your own cash for Earnest Money Deposits to get going on your next investment. Good luck!

Kerry Baird · Answer

@Jan Kerr, not so.  I have gleaned a variety of lenders that provide HELOC products on invest,net properties, many of them from postings in the forums. I have two that I have used myself.  That said, Texas is problematic.

Ridge Lending All in One

Americafirst 80% LTV on noo 65% LTV 15 year 5.74%, Utah

Arvest Bank

East West Bank, up to 60% LTV with "no docs”

First Florida Credit Union (Jacksonville area)

Hurst Lending and Insurance Investment property HELOC in Texas. No seasoning.

Key Bank, flexible lender, HELOCs on second homes and rental properties. 90% LTV on primary.

PenFed

LendingTree is a broker, connects you with multiple loan providers, some sub prime. 3 to 5 week for underwriting is a long time.

TD Bank

Tower FCU, all states except TX, max 45 DTI, green card ok. Max of three rental properties.

Trustco

Union Bank, specializes in noo HELOC

US Bank

Figure

Account Closed · Answer

You are correct re: no HELOCs on rental property in TX. The only option is if you lived in it as your primary residence. Another way to tap into the equity (as I've done with my TX rentals) is to do a cash out refi--that will free up cash to invest in more and scale up.

Costin I. · Answer

@Tyler Smith - yes, I am my own HML. We use the LOC to place cash offers with quick closing on properties that we rehab, rent, and then refinance in long term fixed interest loans. The loan is used to payoff the LOC, which makes it ready for next opportunity. We are not doing flipping, and in my area, I'm not able to find that good of a deal to pull more money than we put in, plus we like to have a safe equity level (25%) for decent cashflow, so most of the time we end up with a 10-20K balance that we pay in a few months. But in principle, it is possible to push the loan to the max and get all your money out, plus some (if you acquire at a very good price point).

Clifford Paul · Answer

What Andrew said!

I have posted at least 100 times the same old song and dance.

Build a relationship with your small bank or credit union. I did this starting 31 years ago.  Once you establish a relationship you will never have to chase loans again.

Costin I. · Answer

@Tyler Smith @Reid Sullivan @Andrew Postell Account Closed -  That unicorn does exist, but is called "portfolio LOC" or "asset based LOC". You just need to ask the right person for the right product at a bank.

1. Do not confuse HELOC (home equity line of credit) with HEL (home equity loan) - one is a "reusable" product, the other is a one time deal. LOC you get charged interest on the balance when used, the other you get charged interest on the whole balance from the moment you get it. LOC you can pay it down and reuse, the other you pay it down and gets closed.

2. There is no HELOC for an investment property. But you can get same thing - a line of credit (LOC) or portfolio LOC or asset based LOC - you just need to find the right bank and the right person in the bank who knows about this type of product (usually a commercial banker). Don't bother to ask a residential loan officer about HELOC on a rental, they will tell you "impossible" and not even know of alternatives.

Again: You can get an LOC on your rentals by asking a commercial lender about asset based LOC or portfolio LOC. A residential loan officer doesn't know about this product. We do have one LOC secured by two rentals that we use to make cash offers on properties we rehab, lease, refinance and repeat.

3. Shop around - the differences in LTV/LTC, fees, renewal fees, periods, terms, rates, closing, documentation required, etc. are substantial from bank to bank. You can see below a comparative sheet I used to bring them to an apple-to-apple comparison when I was looking for something like this 2 years ago.

4. You can get a portfolio LOC from several sources - I recommend Amplify CU (and to stay away from Wells Fargo). Most likely they offer portfolio loans too, that is an easier option to get usually.

[Note: this was from 2 years ago! Rates and conditions changed since then. We renewed ours at 6.25%. ]

Let me know if you have any questions or need more information.

Tyler Smith · Answer

@Costin I. Thank you. So you are using the LOC to make all cash offers? When you refinance you just pay that LOC back and take profit?? Is that correct??

Reid Sullivan · Answer

@Andrew Postell Thank you so much for taking the time to lay this out - I work with a lot of investors that try to utilize lines of credit and this has always been a challenging topic to educate on.

Tyler Smith · Answer

Thanks everyone for your input. This is making much more sense.

No HELOC in Texas for real estate investment??

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