All Forum Posts by: Devon Carlock

Originally posted by @Amy A.:

@Devon Carlock Yes, you do have to qualify for the HELOC based on your debt to income ratio, credit score, and appraisal. You also get a better rate if it's your primary residence. Also, don't forget that if you rent your house for more than 3 of the last 5 years that you won't qualify for the tax exclusion available for primary residence!

I don't know if I was clear in the podcast about how I utilized HELOCs and commercial financing.  Honestly, I was expecting them to ask me more about managing rental properties and all of my crazy tenant stories!

We used the HELOC on our home exclusively for purchasing flip properties. That's because we didn't want the HELOC tied up in one property forever. The profits from the flips became the down payments for the commercial loans we used to purchase 5+ family properties. These loans are fixed for 5 years and adjustable thereafter.

Once my business was established and I had 2 years of tax returns to prove my rental income, I was able to purchase some 4 unit properties with 30 year fixed rates.   Also, keep in mind that the underwriters add depreciation back in, so even if you have a tax loss on a property they may count it as income.  If my husband or I had regular jobs, we would have qualified for 30 year fixed mortgages much sooner.

One point to keep in mind is that my husband had a good job when we qualified for the HELOC. Keep your job and save up until your real estate business is established! He had the steady job and I was able to manage our projects and find deals and tenants. Once the rental income was dependable, my husband was able to quit his very stressful job and start his own engineering consulting business. At that point, we knew we would be okay financially regardless of how his business did. The rental income gave him the freedom to take the risk.

LOL, everybody thought it was a midlife crisis when my husband quit his job!  We had actually been building up the "Free Mike" fund for some time.  It really wasn't about the money for me - it was about saving my husband's health and happiness and allowing him to enjoy our children before they grow up and move away.

 Amy-

Wow thanks for this reply full of so much information! I appreciate you sharing your specific details. I enjoyed your story, since I am in a similar position. I purchased a house in San Jose at the bottom of the market. I did a major remodel and am sitting on a lot of equity right now. Considering selling and moving to a more affordable area that still has potential. Was thinking I could use my capital to do some flips...save up...and then purchase rental properties. Again, it comes down to the employment question. I guess I can get a job in the place I choose to invest in...work while managing the flips. But I'm from the residential construction industry and I know how much time it takes to manage a project. Plus the type of job I'd get wouldn't pay all that much...especially when trying to get a large HELOC. Plus I'm single so no other incomes. Anyways...I have some thinking to do...and look forward to using Bigger Pockets community. Thanks again!

Originally posted by @Rodney Sums:

@Devon Carlock with six hundred K in equity they won't finance you?  You could buy one or more multi unit properties and have cash to spare with that much cash waiting for you

Rodney: Yeah I know! I guess I need to talk to more lenders. That HELOC was with my credit union.

@Grant Rothenberger Asset based meaning just tied to the value of the property I am putting the mortgage on? Are the interest rates less favorable? What is HML and PML?

Hi Chris. That makes sense. I’m just trying to understand how people (that I hear about through bigger pockets) do these rental investments and use “leverage”. I guess they keep their jobs until they have enough monthly rental income to qualify for loans?

I would like to take on real estate investing full time. I have two options I am considering:  1)  Sell my house to get cash to work with.  Rehab a property, then create a traditional mortgage to pull my cash back out for next project.  2)  Get home equity loan...rent out my house in San Jose, CA for a good amount of rent income...then use my loan to do a flip somewhere more affordable.  My question is...in either case what about lenders caring about income? If you don't have traditional employment...how does that work? Do they just care about the value of the property itself? I have a ton of equity in my current home...and when I applied for a HELOC a few years ago they said my "debt to income ratio was unfavorable". At the time I made $50K a year and had about $600K of equity in my home. I would love to keep my current home in San Jose, CA...rent it out for a sizeable rent and let the value continue to grow.  But does that mean I have to line up a job in that new location i find before I can secure my loan? And how does my rental income factor in?  Thanks for any advice!

Great episode. Enjoy the information on real world experience. I would like to take on real estate investing full time. I wanted to ask: when you buy and rehab with cash...then take out mortgage to pull money back out...don't lenders care about your income? If you don't have traditional employment...how does that work? Do they just care about the value of the property itself? I have a ton of equity in my current home...and when I applied for a HELOC they said my "debt to income ratio was unfavorable". At the time I made $50K a year and had about $600K of equity in my home. I would love to keep my current home in San Jose, CA...rent it out for a sizeable rent and let the value continue to grow. Then take out a loan with my equity in order to start somewhere else where prices are more affordable. But does that mean I have to line up a job in that new location before I can secure my loan? And how does my rental income factor in?

Thanks for any advice!