Heloc to buy and hold?

Question

Hi!  This is my second question what is the best way to leverage my 300k heloc .. I don't know if the flipping market is that good but the buy hold and investment rental market is amazing in chicago.. is it bad to let money sit in a positive cash flow property or should I refi in 2 years .. any thoughts would be great !

John Woodrich · Answer

@Jacobus Rex I mentioned I was a CPA for that reason - I am probably the most active MN CPA on here.  LOCs are definitely cheaper than HML and have many uses.  Biggest advantages are what I mentioned earlier, low closing costs and you don't have to pay for money you don't need.

John Woodrich · Answer

LOCs aren't limited to $100k.  I am a CPA in MN and have clients who have HELOCs close to $300k.

Chris T. · Answer

@Mike Joesph

It all depends on what is your ROI on your investment rental, and what % are you paying on your HELOC.

Another strategy is the BRRRR strategy. Use your HELOC to purchase a fixer-upper w/ cash from your HELOC, Rehab it, Rent it out, and refinance it to pull out all if not most of your equity in it.

https://www.biggerpockets.com/renewsblog/2016/06/1...

https://www.biggerpockets.com/renewsblog/2016/06/0...

https://www.biggerpockets.com/renewsblog/refinance...

As always, get more education first and do your due diligence first.

Jacobus Rex · Answer

@John Woodrich   I might have misread the author, but I thought it had your name on the comment. . . but it was at least a year old thread I was reading.   My interest is keen b/c I could use about 110k right now to procure a property outright, and it happens to be that I could probably get that out of my personal residence.  Thanks.  I saw some fellow indicate that he got a nice line from Wings FCU in the past year. Think I'll query my local bank first. I'm looking for this for a modest flip project. Seems alot of folks use this to set up SFRs and then re-fi out.   Seems a good bit cheaper than using Hard Money and seems like a very sensible and low risk use of a HELOC as opposed to the stereotypical "use it to go on vacation" scenario.  I wonder if the funding criteria still have to be the same for it to be a sensible deal. I suppose so.  Numbers are numbers. I'm getting a BPO to try to make sure I am not delusional about the current value vs. purchase.. . .because I might be.

Randy Janoe · Answer

The only potential issue I see with HELOC to fund buy and hold is that HELOCs typically have 10 year interest only period (draw) and 15 year amortization period.

This means that you CAN refinance at the 10 year mark to have flexibility but that assumes the market will bear the refinance and you cant control timing well. If the line cant be refinanced, you may enter into the 15 year am period and it can crush cash flow if your assumptions were using longer terms such as 20 or 30.

Further, unless it is a fixed duration HELOC loan, it is probably a variable rate. Expect Fed to move rates at least twice next year.

A HELOC may be a great use for flips to avoid 12% hard money + points.

Jacobus Rex · Answer

@Mike Joesph @Chris T.

Mike, You have a 300k HELOC?    I just saw a CPA here in MN say that HELOCs are generally limited to 100k.   No such limits in IL?

Heloc to buy and hold?

Most Popular Reply