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Updated over 1 year ago, 06/07/2023
Heloc on Heloc on Heloc forever?
I just took out a HELOC to use as a down payment an investment property. My monthly payments will be low (interest only for 10 year draw period), so shouldn't really affect my debt to income ratio much.
Once I buy the investment property, can I immediately take out a HELOC on the investment home? Since I am putting down 25% and the house will appraise for more than I bought it for, the numbers should work.
And then can I do it again with the house I buy using that HELOC as downpayment? And keep doing this forever and continue to buy more properties? Or am I missing something?
@Ashley Cao I think it’s a great whenever you can build a relationship with a banker / commercial lender. So yes, I try to do everything with the same bank. They know business model, they see my track record and they see my assets. All things that make for a better likelihood I’ll be approved for my next loan.
Good luck!
I am looking to purchase my first rental property. I am planning on using my HELOC on my home for a down payment. I am currently in the process of finding the first deal. Is using my HELOC a good idea? I keep thinking worst case scenario when using a HELOC. Any advice would be appreciated! Thank you!
I am in the process of doing the same thing, except I am going to be trying to do a few fix and flips before buy and hold. I think it is a good idea as long as you understand the numbers up front and do your due diligence on whatever property you plan on obtaining. Find a real estate agent that knows your market to better help you understand if you are getting a good deal. Make sure you property projects to positive cash flow once the numbers are ran. Once you do get that positive cash flow property, hit the refinance button and pay off the HELOC, rinse and repeat. The method works from what I have seen. You just have to make sure you are getting a good deal and are prepared for any potential pit falls.
Can anyone please recommend a good HELOC credit union that which allow me to deposit funds into the HELOC? Thanks!
Originally posted by @Orlando Perez:
Are there any companies that do HELOC on non-primary residences? We have a rental property that has more equity than our primary residence?
Which companies/lenders have you used for your investment property Helocs? I’ve used East West, “no docs” but only offer 60% LVT at 7.5% rate... $500k max limit. Do you have another lender than can do better?
@Alvin Uy Thank you so much for getting back to me. We found two banks that do offer Helocs on our investment property. They are willing to do 75-80% at 7.25%. However, we are still weighing our options. We are in the process of getting plans approved for an ADU. So, we are trying to figure out our best options to finance that project, without to much risk. We need some skin in the game in order to start forming systems that work for us. What we want is to scale up with multifamily property (3 or 4 plex). If you have any suggestions, I am open to conversation.
Originally posted by @Orlando Perez:
@Alvin Uy Thank you so much for getting back to me. We found two banks that do offer Helocs on our investment property. They are willing to do 75-80% at 7.25%. However, we are still weighing our options. We are in the process of getting plans approved for an ADU. So, we are trying to figure out our best options to finance that project, without to much risk. We need some skin in the game in order to start forming systems that work for us. What we want is to scale up with multifamily property (3 or 4 plex). If you have any suggestions, I am open to conversation.
Which bank is this? Please PM me your banks contact info. Thats better than what I got (EAST WEST BANK). Mine is at 60% LTV for investment properites at 7.5% but "no docs".
To be honest, im in a similar boat. In my opinion, HELOCs should only be used as temporary financing... not for long term. I have 2 HELOCs opened right now against 2 of my 5 properties. Im flipping and doing new constructions with the funds. Im contemplating opening up HELOCs for the rest for more access to capital... but worried if its smart move. Also, I dont want to run the risk of over exposure on DTI and FICO... which may impact my ability to refi.
I was just speaking to another investor today who is using HML at 7.99% @85%LTV for all his flips. Im thinking its a better bet since I can save my DTI off books for when I need to refi for buy and hold properties. So many strategies but all depend on your immediate financial needs and exit strategy.
When you say “scale up with multi family properties”.... what exactly do you mean by this?
Originally posted by @Michael M.:
I just took out a HELOC to use as a down payment an investment property. My monthly payments will be low (interest only for 10 year draw period), so shouldn't really affect my debt to income ratio much.
Once I buy the investment property, can I immediately take out a HELOC on the investment home? Since I am putting down 25% and the house will appraise for more than I bought it for, the numbers should work.
And then can I do it again with the house I buy using that HELOC as downpayment? And keep doing this forever and continue to buy more properties? Or am I missing something?
The problem you will have is the equity part. Each loan will be 80% ltv max so you will need to build up equity for the next purchase. This will take a long while unless the market goes up quickly. I am guess I got that after a few the banks won’t do it anymore for their risk appetite. It definitely won’t work the scale a ton of purchases in a short period of time.
I received a HELOC from Tower Credit Union and am doing interest only for 10 years. Here is the link: http://ww1.towercu.org/
I would absolutely use them again. They did want to use an automated appraisal and I knew if I used someone local the appraisal would be higher and in fact it was. If you use a local appraiser you cover the cost which I was happy to do.
For those interested in this concept, I found show 197 with @Chris Heeren super informative.
https://www.biggerpockets.com/blog/bp-podcast-197starting-10k-buying-52-units-3-years-chris-heeren
@Orlando Perez
Just be careful with the ADU. Most cities require that the property owner live in one of the two units and make you record a covenant against the property for this purpose. You also can't sell them as separate units.
@Jessica Sarantakis Thanks Jessica! Was there a particular CU you used that is listed on the website?
Hi Matt,
I used Tower Credit Union.
Please let me know if you have another question. I'm happy to help!
I might be missing something, perhaps just terminology, but no I had the understanding that bank do not do HELOCs on an investment property. Is this not what others are seeing?
Functionally a commercial line of credit is common and the same thing financially - but to my understanding, it is not called a HELOC.
@Jim Goebel I currently have 12 HELOAN's and 2 HELOC's on various investment properties. Without HE's the BRRR strategy doesn't exist...
If your current bank told you no, find another. RE Investor meet ups are great places to learn which banks work with investors. This is how I found the current bank we do everything with.
@Mike Dorneman I might be misunderstanding but can't you brrrr with cash out refinancing just as well as HELOCs, especially if you can find a place without seasoning that will cash out on the ARV?
@Brian Brusich Yes, exactly! Sorry if I was unclear. The reason I' do Helocs is to have a large sum of cash on hand for deals, but not have to pay on the money until I actually use it. The issue with the HEloan, is you must start making payments right away, even if that cash is just sitting in my checking account as I look for the next deal. Plus, most banks allow you to swap a LOC to a Loan at any point without and fees. So max out the loc, convert it into a loan, then brrr the property you purchased with the LOC cash and refi the new deal. Rinse and repeat 😁
@Mike Dorneman I'm new so let me reword what you said and you tell me if I'm saying it right
You HELOC asap and don't draw on it until you need cash, in this way you don't have to pay interest until necessary
You use as a bank that allows you to refi to arv value to pull equity and instantly repay HELOC. Bank is chosen for three factors, feeless loan transfer of HELOC to refi, no seasoning period and offer based on arv. At that point low interest rates would be icing.
Do you use the same initial HELOC for cash flow or do you open a new one on the next place and sort of Daisy chain as you go?
@Brian Brusich Yes to everything you stated. I daisy chain / leap frog. I bought my very first deal with my cash, I’ve since used each preceding deal to find the following one. Buy your first one, then never use your own money again. (You also recoup your own cash from the first deal during this process)
@Mike Dorneman last question I think, is there a benefit to HELOC each new property versus just keeping heloc open on one of your most valuable properties and paying it off intermittently?
Question to you guys on this post, did you have any issues getting approved for the HELOC (on primary residence) to be used on a purchase of another property?
I am in application process with a lender (Affinity FCU) and when I mentioned I wanted to use the HELOC on my primary residence for down payment or purchase of another property as an investment, the underwriter hesitated and mentioned I may not be approved for this type of use.
I've initially called the lender to make sure this use was ok, but now the underwriter I spoke to makes me think otherwise.
thanks in advance!
@Brian Brusich Cash flow is important to me so I have the ability to move on a deal when an opportunity presents itself. With that said, I keep a Heloc on my highest appraised property, to enable having access to the greatest amount of cash flow. If the next deal is appraised under the current property I have the Heloc on, ill just do a heloan on the new one.
Great questions by the way, find a deal and jump in!!
Is it just me, or is this strategy the well known BRRRR method but with HELOCs instead of cash out refinances?
This thread was super informative. I am in the process of applying for a HELOC on our primary residence to fund our first investment property.
@Lareshea Anderson That's how I got my 1st investment property! I'm trying to get another one, but need more capital. Well wishes!!!