All Forum Posts by: Account Closed

@Andrew Flora

PenFed Credit Union. Open an acct online for $5 or $10 to become a member and call the mortgage dept. I have 5 equity lines with them between me and my wife. They will limit the number you take out. Easy to work with, lend everywhere, responsive and in some cases a desktop appraisal.

You can definitely pull out cash from a heloc to use as a down payment on a loan for a multi family purchase. In terms of how would you do that - when you go to close on your purchase of the MF unit, you would bring a cashier's check to the closing for whatever the down payment amount is.

Is your heloc with a local or national bank that has a branch near where you live? If yes, then you'd just go into the branch and ask them for a cashier's check to be drawn from your heloc. Take that to the closing and you're done.

ie.. Lets say you had a BofA heloc of 150k available to you. You get a MF property under contract for 500k and the down payment is 125k. The day of the closing, you go to BofA and ask them to draw 125k out of your heloc and give it to you as a cashier's check made out from your name to the title company's name of the closing (most closings require it in the title company's name but you might want to check).

Show up at the closing with the cashier's check and voila, you own the property.

@Account Closed, it's easy to do a cash-out refi on a home you don't own outright, assuming you have more equity in it than the minimum downpayment required on the newly appraised value of the property.  We're doing that right now on one of our single family homes.  You sign an application, agree to terms, lock in a rate, and go through the normal appraisal and title work.  At closing, the bank deducts the downpayment on the new loan, closing costs (including escrow amounts), and the balance of your previous mortgage from the refi proceeds, and the rest is a check to you.

Here's a quick example using the BRRRR method. Let's say you sign a contract on a home for $100k and pay $20k cash from your HELOC as the downpayment. The loan amount would be $80k. Then let's say you put $40k of rehab into the home, again using HELOC funds. Keep in mind that as soon as you use those HELOC funds you begin paying interest. Your total investment in the property is now $60k ($20k down and $40k rehab). Let's assume that the after repair value (ARV) of the property is $200k, and you rent the apartment out for a "seasoning period" of say 6-12 months.

After the seasoning period, you ask the bank to do a cash-out refinance, and you go through the process I described above. Sometimes banks will require a bit more downpayment on a cash-out refi, but for simplicity let's use 20% of the AMV or $40k, with closing costs of 2% or $4k. At closing, the bank will initiate a new loan for $160k (200k-40k) and deduct from the $160k proceeds: 1) $4k closing costs (including escrow items) and 2) $80k balance from original loan (will be lower since you'll have paid off some principal by now, but using $80k for simplicity). You'll get a check for $76k (160k-4k-80k). With that check you pay off your $60k HELOC balance, and you're left with a nice little $16k profit on the transaction. $16k profit on $60k total invested (using just your HELOC) = 26.7% pre-tax return, and you now have a nice, updated, rented property that you can put on autopilot while you put all that cash to work on the next BRRRR property.

It's a bad deal no matter how you look at it. It is irrelevant where the DP coms from if a property does not have positive cash flow all you have is speculation on appreciation.

You are working for nothing since every income property has tenants paying down the e mortgage and appreciation happens, or doesn't, anyway.

All income properties must produce positive cash flow based on a assumed 100% financing otherwise they will never produce positive cash flow (equity kills cash flow). This property is a terrible investment choice. 

@Account Closed It was US Bank, and no, the only thing they made me do was transfer the funds out of the HELOC account (also through US Bank) and into a personal account before closing.

I also have experience with this. I wanted to buy a 3 property portfolio from another investor. The down payment was just over 100k for properties totaling just over 500k. I'm very fortunate to have a decent amount of equity in my primary residence, so was able to secure a HELOC of 100k and I only had to come up with around 9k of my own income. The rent on the 3 units more than covers the 3 conventional loans and the HELOC payment.

Depending on the bank, they sometimes run specials on interest rates and such. I believe US Bank was only 2% for the first 6 months. For the first 10 years, all you are required to pay is the interest, although you want to keep in mind that once the 10 years are up, you'll lock into a 20 year payment plan with P&I. So you don't want to leave too much hanging until then. The added bonus is, the quicker you pay down the principal, the quicker you free up those funds to use again and again! US Bank allows withdraws for the first 10 years. 

Hope this helps! It was for sure the only way I would have been able to pick up that portfolio. :) Good luck!

 it's common sense, why are they selling. The reason for the sale will tell you what's important (time, money, getting rid of a headache etc). Obviously everything has a price, but price doesn't just have to be money... and if you're trying to be competitive in a multi bid find something that makes your offer stronger/more valuable. 

I saw a real life example unfold once recently. The family had a situation come up and were relocating on short notice. They had multiple people interested (one was first time home buyer, other was an investor, not sure the others). The realtor let everyone bid it out... eventually the first time home buyer had the highest offer and they were selected. Then they couldn't get financing and the deal feel through, then the investor was contacted to see if they still wanted it, they didn't. So now you have a house on the market the family trying to move and get their house sold, it looks bad because it's been on the market for a while and no one bought it. So then new couple looks at it on a whim, writes a offer at asking, has high down payment. It literally took hours for them to get it accepted. The point being, the seller needed to sell the house ASAP, a list price offer with high down payment was more valuable than a higher priced offer with little down payment.

Much easier to explain in person...

If they have multiples up front and a decent realtor they should rank them and pick the top ones to offer a counter. Value can be outside of money, but good chance they counter everyone and tell you to offer best and final by set time and date. Then few days later they tell you the outcome, doesn't matter when you offer because they'll wait till deadline to evaluate.

The more you can find out about them and why they are selling the better you can position yourself to provide value. You're investing, it's numbers, they either work or they don't. Sellers can have emotional attachment to the property or be in it at different price point than you so you need to find a solution to their problem. They are selling for a reason (or maybe they aren't actually interested in selling and want to much).