All Forum Posts by: Andrew Postell

@Anna Catron your lender should be able to tell you these answers. I'm encouraging you to go to your lender because in Texas, getting a HELOC on a duplex is pretty difficult. The question isn't stupid at all...we just need to make sure your lender can answer it. Reach out if you have any questions on this.

@Ogie Cortes it would be strange for a hard money loan to be used on a new build...but maybe it's possible.  Usually they want to see your new construction experience...but again, I'm speaking for your lender.  The best advice I would tell you here is that you should be asking your lender these questions.  A good lender will be able to show you these details so you can compare them to each other.  Hopefully your lender can do this.

@Ty Soule I'm going to give a little comparison to try to explain some differences - and then I'll address the limited cash thing further down.

Generally speaking there are 2 main types of loans for investors: “Conventional” mortgages and “Portfolio” mortgages.

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. Sometimes referred to as "bank statement" loans. And sometimes called "DSCR" loans. Whatever they want to call them, I want you to think of these as loans that come from the lenders themselves. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But there's usually some type of catch. Over the past 5 years or so, having a "prepayment penalty" is the most common drawback. But there's no "debt to income" ratio here. Your income is of no consequence (usually). These loans are easier to get but the terms are different.

A DSCR loan specifically uses the income of the property to qualify - not your income. That's a benefit to people who show no income (like many real estate investors). However, if you do have a W2 type of job...then maybe the Conventional loan might be worth looking into. I would encourage you to work with 30 year, fixed rate mortgages with DSCR loans. When speaking with lenders about them ask about prepayment penalties. Ask what it would mean to have a shorter penalty. What it would mean to have a longer penalty. As you can see above, some lenders will have loan minimums too. So, it's not always about the "rate" in this space. Other factors are important as well.

Now, about the "having a smaller amount of money" issue.  We ALL have this issue.  Everyone's money is limited.  Maybe someone's money has a higher limit...but it's still a limit.

I have been using the BRRRR Method for 20+ years (before we even had a fancy acronym for it). It solves the issue of not having a lot of money to start. There are other "advanced" techniques as well but that one still works.

You might hear a lot of different opinions on this stuff but here's one of the more popular podcasts I was on if you want to hear my story: Best Side Hustle Ever!

Reach out any time!

@Dario Alvarado thanks for the post. My suggestion here is to get connected locally for this. Meaning, what works for me in my market...may not work for you in your market. Visit your local REI groups. There are many groups that meet across the country. Some post here on the Bigger Pockets Marketplace. Many post on meetup.com. Eventbrite is another resource. Even facebook will have some. Networking is always a great practice and local people will be able to share with you what's working in your market.

Hope all of that makes sense.

@Brad Kremer just wanted to confirm some information here.

As mentioned just above, there is no law against a HELOC on an investment property. I can also show you a 2nd lien mortgage on a 2-4 unit investment property here in Texas. So, now you know 2 lenders that can write something for you here.

You are absolutely doing the right thing by reaching out to see if other investor have options - and there are even more resources for you on a local level.  Several real estate investor groups meet in Austin on the regular.  There might be some investors that know some local places that write these as well.   Meetup or Eventbrite are two resources to know about.  Not everyone can meet though.  Sometimes we have family obligations or work in the way...but just wanted you to know that those do exist close to you.

Hope all of that makes sense but feel free to reach out with any questions.  Thanks!

@Lawrence Cargnoni as mentioned above lenders are ok with this but I would encourage you to think about some things here.

HELOCs/Line of Credit are NOT designed to be a permanent financing solution. Two of the common areas of concern for HELOCs I see out there is the 10 year maturity date and the adjustable rate. Since HELOCs have adjustable rates they will often catch people off guard when they adjust. What will rates be in 5 years? Who knows? That's called risk. Unknown = risk. The 10 year maturity date is where the HELOC will modify into a different product all together. Meaning after opening the HELOC, 10 years later it will cease to be a HELOC. It will "mature" into a 20 year fixed rate mortgage that you can no longer draw on. And when it matures the rate will increase. I've seen typical numbers of 1%-2% higher than your current rate.

What HELOCs are designed for is to be a giant credit card. And just like any credit card, you need a plan to pay it back. So if you use it to say....buy another property. Then flip that property...thus paying back your Line of Credit. 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.

On the other hand, if you were going to use that Line of Credit for the downpayment on a property that you were looking to buy and hold for 30 years....this would be very counterproductive. You are essentially borrowing 100% of the property value.  We don't even do that with our own primary homes.  You would be bleeding money each month on a property that is leveraged 100% of the value.

So, while you can do it...maybe just think about how the math in this scenario works.  Hope all of that makes sense. Feel free to reach out about this.  Certainly here to help.  Thanks!

@Jonathan Welch very sorry that this has happened.  To get to the short of it - you can ABSOLUTELY refinance, right now, without waiting.  If a lender is using the ORIGINAL PURCHASE PRICE of a home - that is 100% incorrect.  I mean, that is allowed.  Meaning, is it allowed to be more strict than Fannie/Freddie (we call them overlays).  So, even though Fannie/Freddie would allow a higher appraised value on your property it is allowed that a lender doesn't have to follow that rule.  Lenders can be MORE strict...but not less strict.  It's important for us to work with lenders that have no overlays.

Now, the appraisal is just ONE layer to your post. We also then have to speak about cash out, credit scores, reserves, etc. with Fannie/Freddie. Or, we can just go with DSCR loans.

This has been an ongoing issue for years and years and years.  Not every lender will do what we need to do.  So, it's important to work with the right lenders.  I wrote an entire article on how to structure your deal from the beginning (which means you would need to go back in time) HERE.  You can at least know for the next time.

Again, you can use DSCR loans right now to get what you need. Reach out if you need any help with anything. Certainly here to assist. Thanks!

@ShaRae Kalian yeah, this is a 100% sell scenario. There's likely no other financing here that would give you a better scenario. Meaning, if with NO ratio on a DSCR loan...so less money to refinance...but you would be bleeding money every month on negative cashflow. So, sell the property. Nothing wrong with making a profit on a flip.

@Mak Khater that is completely untrue.  That is not accurate at all.  You can still use projected rental income to this day.  Feel free to reach out.  Certainly here to help.

@Taya Larsen I will tag the original poster like this @Christian Requejo and that gives us a notification to respond.  Now, Christian hasn't been active since 2023...but sometimes people just read things and don't respond very much.

Now, the things I would share with you in your inquiry here:

1. Speak with your builder about how much it takes you build a home.  Ask them about the price but also ask if they need you to secure financing.

2. If they do need financing, then speak with your lender about their new build financing options.  If they don't have any...then we need to find one that does.

3. Part of the equation is how much equity can be drawn from your property as well, this would also be a question for your lender.

4. And the final step, what will you do with your current home? If you want to keep it, then would you refinance that new build to pay back the HELOC? Or does your financing terms require you to do something else (which is why we need to ask question #2).

Maybe the original poster will respond as well but those are the 4 items I would tell you to uncover.  

Good luck!