For the purpose of buying properties, is it pretty common to take out a HELOC for 100K or so, and pay it back within 10 years, without a cash out refi? I mean, if the most common path towards HELOC repayment is refinancing, then why not cash out refi in the first place?
I'm trying to figure it out as I took out HELOC before $hit hit the fan and used it to acquire 2 properties. Now I'll be paying it back as the interest rates are higher and I need to payoff a few other expenses associated with the other 2 purchases.
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
3y
@Mario Morales I am going to go contrary to a lot of the advice on here, and I practice what I preach. I have a HELOC, and it has helped me acquire four buildings in the last 4 years. I hope to pay it back as well soon with a cash out refinance or through cash flow, but at the same time I am not going to lose sleep about a loan coming due in 10 years. Obviously, you need to be able to afford the debt service on it, and you need to make sure the new buildings are cash flowing well, etc.
RE is a long game, and one or more of your buildings will appreciate in the future. You will be able to cash out and get rid of that HELOC, or you will be able to pay it down out of cash flow. Also, you could sell your primary at some point and pay it off, and then buy another primary with a low-down payment loan. There are plenty of options as long as you remain flexible.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
3y
@Mario Morales hmmm, so usually we don't use HELOC's in that way. I mean, you can use it how you see fit of course but because it's a variable rate, and because it will "mature" in 10 years, we need to have a plan to pay it back or we could really get caught in a tough spot on them. HELOC's act as a giant credit card - and that means we need a plan to pay it back quickly like we would a credit card.
So if you use the HELOC to say....buy another property. Then flip that property...thus paying back your Line of Credit with the sale of the property and keep the profits...then that's perfect! Because you will never get surprised by an adjusting rate or keeping a balance on it. Lines of Credit are PERFECT for people who have a plan to pay it back.
Realtor · Longmont, CO · Member since 2021 · 577 posts · 631 votes
3y
People are talking about Helocs now to protect their lower rate on the first position mortgage on the house. Before this, the main reason I used a heloc was to have a higher LTV limit for a cash out transaction.
Like @Andrew Postell said, you can use the Heloc as a line of credit that you pull and repay. Personally in these weird times, where financing markets are getting stretched thin, I would not recommend not paying it back and holding cash, because banks could/ are starting to close helocs to new withdrawals.
Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes
3y
I wouldn't use a HELOC for a downpayment - unless you have a very high cash flow and can pay it off quickly
I'd use if for a rehab on a BRRRR for a different property because I'll be getting that money back when I refi. In this case I'm just using it to replace cash. Maybe for repairs so you don't have to use cash. Then let the cashflow pay off the HELOC.
Seems a weird strategy to me to use a HELOC for a downpayment on different properties with a 10 year payment plan at variable rates. If you have to cash-out refi on a property to pay back the HELOC, then your banking on huge appreciation, which may not be the case. Not only that cash-out refis are about to get a lot more expensive from what I understand (3-4 points on investment properties). On top of that now you're changing the interest rate on the property that you cash-out refi on, and increasing the principal, more than likely - a lot of unpredictable moving parts there. This is high risk and doesn't really make sense to me, especially at 100k. 20-30k ok - worst comes to worst you can get that paid off. 100k - you're pretty much stuck.
Sounds like you are learning a valuable lesson here. What was the motivation/thought process to get a HELOC?
Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 798 votes
3y
A heloc doesn't cost you anything, but a cash out refi does have closing costs on your primary home. Yes your heloc is going up in rate now, but remember you're still not paying additional principal so you are still at least saving that money for the 1st 10years. Anyway just a few positives, but I feel you on the rate increases as I am going through it now too.
A heloc doesn't cost you anything, but a cash out refi does have closing costs on your primary home. Yes your heloc is going up in rate now, but remember you're still not paying additional principal so you are still at least saving that money for the 1st 10years. Anyway just a few positives, but I feel you on the rate increases as I am going through it now too.
How does a HELOC not cost you anything?
I get it comparable to a cash out refi - completely different.
But if my HELOC rate goes from 4-10% on a 100k loan - that's a chunk. Could put you in the red. Throw a couple cap ex expenses in, some vacancy or whatever else and you're looking at breakeven/negative cashflow scenario.
Raleigh, NC · Member since 2020 · 27 posts · 25 votes
3y
I agree with most folks are saying here. Normally HELOCs would be used for short term financing situations. I assume the motivation on using the HELOC was to pay cash for the property to get a better deal when purchasing. I would just have a plan to pay it down aggressively. If you current income and cash flow allows you to do this then you'll be fine.
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
3y
@Mario Morales I am going to go contrary to a lot of the advice on here, and I practice what I preach. I have a HELOC, and it has helped me acquire four buildings in the last 4 years. I hope to pay it back as well soon with a cash out refinance or through cash flow, but at the same time I am not going to lose sleep about a loan coming due in 10 years. Obviously, you need to be able to afford the debt service on it, and you need to make sure the new buildings are cash flowing well, etc.
RE is a long game, and one or more of your buildings will appreciate in the future. You will be able to cash out and get rid of that HELOC, or you will be able to pay it down out of cash flow. Also, you could sell your primary at some point and pay it off, and then buy another primary with a low-down payment loan. There are plenty of options as long as you remain flexible.
Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 798 votes
3y
The heloc doesn't cost you anything to obtain the financing when you first get it as opposed to a traditional loan/refi which would have closing costs. That's why some people choose the heloc in the first place. Yes the variable heloc has gone up and is costing you money, so I suggest paying it down if you're truly in the negative.
Hello! Looking for some advice as I am using a heloc to buy and rehab a property. I would like to do a cash out refi to pay off the purchase and rehab costs so that I can rent the property for long term…. But I am not finding a broker/loan that I could do that with. What they are telling me is that I can cash out refi but only 75% of the purchase… and can’t recoup my renovations costs.
My only recourse is to flip at this point unless (here’s where the advice I’m looking for) there is a mortgage option to be able to get all my cash out or most of it.