All Forum Posts by: Account Closed

@James Edwards

On my primary, though PenFed will also work on investment properties. Based upon appraised value, not drive by or desktop underwriting. Very pleased with the product. These are not quick...Same month or so, as regular mortgage.

Hello All, I'm looking to get a HELOC on a SFR in Boca Raton, FL just to have the cash available. I've shopped around some so far with no luck. Seems no one local wants to do an equity line on investment prop or at very low LTV. Current LTV on 1st mortgage is ~53%, so I was hoping to find one for 70-75%. Does anyone have any leads or ideas for this?

Excuse me if this has been answered recently, I quickly searched the forum with little luck for exact question.

Lander 

@David M. Thanks for the response and encouragement. You seemed to have accomplished exactly what I'm trying to do. I'm going to keep ringing the local and regional banks and affiliates and see what I can come up with. Thanks again!

@Andrew Postell Thank you as well, I was going to post this there originally but opted for this as I felt it was more relevant. I'll try more lenders and repost in Florida if I come up short. I appreciate your help!

Lander 

@Andrew Postell @Chan K.

You CAN get HELOCS on investment properties. Not every lender does them but you can certainly get one on an investment property. The terms are usually crappy though, compared to a HELOC on your primary residence. Lenders also like when there is a mortgage on the home already. Free and clear properties will make certain lenders balk on a HELOC. Not sure why they like being 2nd position on a HELOC but it's what I've seen time and time again.

And to answer your question Chan, it depends on what you want the money for. If you have another investment to dump the money into now, the go with the cash out. You can lock the rate for 30 years and usually get a cheaper interest rate than a HELOC...even if you lock a portion of your HELOC. The down side of a cash out is tha you have to start making payments on the cash out right away. So, if you don't have an investment lined up, cash out might not make sense.

If you don't have an investment lined up, a HELOC might be better. It works just like cash, just sitting there, ready to deploy instantaneously and you don't have to pay as long as you're not using it. Fantastic for flipping or if you are searching for a property to buy but not sure how long the search will take. The down side is, your interest rate is floating and even if you spend a portion of the funds and then lock your rate on the funds spent, it will be higher than a cash out usually. Also, you draw is only for 10 years on a HELOC usually and a 20-year pay back period (10 of which is the draw and 10 more to pay off). That's the most standard terms on a HELOC on your primary residence. Investment property HELOCS have worse terms.

I would not recommend short term debt to finance a long term asset (unless its a value add).  Better off putting a conventional loan on the paid off property.

Hi @Kelly Carter

Yes, I used my HELOC to pay for the investment property in full. I am also using the HELOC to rehab the property. Once it is rehabbed, I will rent it out, and then do a cash-out refinance. The goal will be to pull out the full amount invested so that I can pay off the HELOC. At that point, I'll have a mortgage on the rental house, but not have any additional loan against my personal residence. I like this for 2 reasons: First, my own home is not leveraged, and second, I have the full HELOC available to me to buy another rental house employing the same method.

A lot of the decision-making here comes down to your own comfort with risk and leverage.
Also, it kind of depends on your short- and long-term goals.

Would you use your HELOC to make a down payment on an investment, finance the remaining purchase price, and then rehab the property, and then refinance to get your HELOC investment back out and pay off the HELOC? If so, that's similar to what I am doing. The only downside here is that you will have to pay closing costs and other fees TWO TIMES. Once at the initial purchase and once when you refinance. This could be a couple thousand dollars or more. I don't like that extra cost. You might be better off with private money or hard money at that cost. 

Or, are you thinking you would use the HELOC as a down payment, finance the remainder of the purchase price with a traditional loan, and then just rent it out and pay on the loan? If so, then personally, I would NOT use  my HELOC for a down payment on an investment property in that scenario. Here is why:
1. I do not want to have that extra lien on my personal residence for an extended period of time. What it I want or need to sell my residence? That's a difficult circumstance.
2. I want to buy multiple investment properties, not just one. If I use my HELOC for a down payment, then I am out of money. Having just one investment property won't be very profitable, AND it is pretty high risk because of potential costs of vacancy, repairs, and capital expenses. Multiple properties with income can help weather some of those costs.
3. If your rental property is paid for with HELOC and mortgage, that means there is very little equity in the property and a lot of loan. That is just too much leverage for me. You'd likely be years away from paying off that property (and your HELOC) or buying another.
4. Being highly leveraged like that carries too much risk for me. Any downturn in the market and you are underwater on the investment property, and maybe even your personal residence. Maybe you can weather this with W2 income, or other business income, or rents...but maybe not.

In my mind, I will only use a HELOC if it allows me to pay for AND rehab a property AND have an after-repair value high enough to pull all my money back out with a cash-out refi. One difficulty in this method is making the numbers all work. You have to have a HELOC high enough to buy and rehab a property AND be able to find such a property in a neighborhood that will have a good enough appraisal after rehab and that will draw enough rent to cash flow.