Homes Prices up nearly 50% since the pandemic - How to cash out and reinvest equity

[AJ Wong]

There was a fantastic recent BP Blog about home prices being up nearly 50% (47%) since 2020. Recently several of my investor clients have leveraged equity in their primary or investment properties as down payments for purchase acquisitions by obtaining a HELOC or fixed rate second mortgage.

Even investors that put very little down on their initial property purchases are finding that they have equity that can be allocated towards portfolio expansion. At the moment, second lien positions aren't at ideal interest rates, often Prime + 2%+ or in the high 8-9-10%'s. On a positive there are 15-20-30 year amortizations and increasing income qualifications including instant approval and AVM (no appraisal requirements) for very clean applicants, and creative documentation for self-employed borrowers or investors such as bank statements or even DSCR (usually up to 75%LTV) for investment properties.

One strategy to rapidly increase door count would be to leverage an equity position utilizing a cash out second equity line or fixed second loan as a down payment for a new primary purchase of 2-4 units. If certain requirements are met, this is possible with as little as 3.5-5% down for full income verification borrowers and 10% down for alternative income verification. 

Recently we've found seller(s) to be increasingly receptive to concessions of up to $20k towards buyer(s) closings costs. Theoretically investors can expand their portfolio with little to no cash out of pocket, and ideally refinance when and if rates decline. 

We have one luxury second home investor that recently purchased an oceanview property below asking at $699k with 10% down and a 3% seller concession. They utilized a HELOC on their primary for $70k towards the down payment. So for effectively $5-600/mo plus their mortgage payment they were able to secure their dream home and eventual coastal STR. They are well capitalized and qualified but preferred to minimize their overall risk and minimize out of pockets contribution while rates are elevated.

Are you or your clients in expansion mode?