All Forum Posts by: Brandon Morgan

I literally did this exact same thing. I took out 55k for renovations. Second home was going to be a house hack so I only put down 3.5% but needed the 50 for renos. My goal is to pay back that 55 within 2 years, not doing a refi though. Don't want to lose my rate but the HELOC rate is at 10% now so tha'rs pretty tough. It was like 4% when I opened it a few years ago, so maybe looking into fixed ones instead.

@Brandon Morgan

I bought my first two rentals from a HELOC since I didn't have any money at the time. Then I did a cash out refi on my primary a couple years later to use the cash to buy 3 rentals with 20% down on each. Using this equity in my primary launched my real estate investing with zero out of pocket money. Since then, I've scaled up with 3 more cash out refis to buy 12 rentals for free (no out of pocket expenses for down-payments on new purchases). I'm a fan of using equity to scale up. Not all of us have 50-70k sitting around in savings for down payments for new purchases. So might as well use built up equity just sitting there doing nothing!

@Brandon Morgan

I bought my first two rentals from a HELOC since I didn't have any money at the time. Then I did a cash out refi on my primary a couple years later to use the cash to buy 3 rentals with 20% down on each. Using this equity in my primary launched my real estate investing with zero out of pocket money. Since then, I've scaled up with 3 more cash out refis to buy 12 rentals for free (no out of pocket expenses for down-payments on new purchases). I'm a fan of using equity to scale up. Not all of us have 50-70k sitting around in savings for down payments for new purchases. So might as well use built up equity just sitting there doing nothing!

You won't be able to tap into all of that home equity, but doesn't sound like you need it anyway.

The bank will probably lend ~80% CLTV. Meaning you take 80% of your home value, then subtract out your first mortgage, and that's about what they'd give you for a HELOC. Depending on loan size, credit score, and other factors this CTLV might be limited to 75% or even 70%.

I think it's a good plan to leverage your homes equity to buy another deal. But the challenge will be finding something where the numbers make sense because what you will be doing is 100% financing on that investment property (you'll have your 1st mortgage on that property, then the HELOC is indirectly debt on that investment property). Plus you'll be 100% financing with expensive debt. Both your 1st mortgage and your HELOC will come with high rates.

It's tough enough to get deals that cashflow nowadays if you're putting 30%-40% cash down.

Anyways all that being said, get the HELOC. It'll be good to have access to that money in case an opportunity does come along.

The building "population" matters. If it is primarily owner occupied, you may run the risk of rental restrictions (rent cap, minimum lease length, etc.) down the road. 

If the building is over 50% non-owner occupied, loan options for a buyer are limited. VA and FHA buyers will likely run into issues if that is the case. The flip side of that is that you are in a more rent/investor friendly building.

It is critically important how well the HOA is managed.

Many HOAs try to keep the monthly HOA fee low, but then run short when major repairs need to be made. In this case, they will assess a Special Assessment. Special Assessments can destroy your projected returns and put you in a cash bind. You will want to see the HOA's financials for the past few years and determine if they have been putting away enough cash every month.

Poorly run HOAs can be an absolute nightmare.  Just google "Zombie Condos" and take a look.