All Forum Posts by: Gary Parilis

Looking for recommendations for a bank for HELOCs on rental properties — lowest rate, highest LTV, longest draw period.

I have a couple of properties with mortgage + HELOC. I'm ready to pay the mortgages off (at least one) and replace with HELOC for the max LTV. TD Bank will give me a 75% line at 5.24% (requires FICO > 740), with 10-year draw. Any recommendations for better deals?

The properties are in PA and FL.

Also, is there such a thing as a fixed rate? I’ve only seen variable rates.

I think 9% CoCR is pretty good if it's in a market that's appreciating -- particularly if you can raise your rent a few percent each year. Something newbies often don't consider is the impact os small rent increases on your CoCR. For example, a 4% increase would be $50, which is a 25% increase in your cash flow. 

@Nic S.... Several people are saying "don't sell!" Several others are saying "sell!". There's a critical piece of information we don't know about these properties... Did you inherit bad tenants because the previous owner sucked at screening, or because the properties are in areas where there are very few good tenants? The answer to that question will determine whether to keep or get out. Turnover and evictions are cash flow killers, and you need to evaluate whether you will be able to get good tenants. If so, I generally agree with the "it'll be fine if you ride it out" crowd. If not, don't throw good money after bad.

I agree with the others. Hold! Tap in the capital with a cash-out refi. (Not sure why people are suggesting HELOC if you know you'll be re-investing it.)

One of my biggest regrets is selling my first home 20 years ago, when I was a little older than you. It would have cash flowed all this time, the mortgage would be pretty much gone -- and it's now worth 3x what it was then.

I have a property in Daytona and one in S.Daytona. I like the market, but I'm finding the cash flow isn't as great as in other places. Interested to know about your experience @Paul Ricci Jr. Where "just north of Daytona" are you?

Key part of the answer is based on how much it will cash flow. Do you have a mortgage? Add up all your expenses including mortgage, tax, insurance, average repairs/maint, utilities (if you think you'll pay them). Also add in property management, figure 10% of the rent unless you know otherwise. Work out how much you think you'll get for rent. Discount it for whatever % vacancy you'd assume for your area. Subtract all the expenses from the adjusted rental income. That's your cash flow. 

Decide whether that cash flow is enough for you to keep the property.

Zillow says Fayetteville appreciated 10% this year and expects another 11% next year (https://www.zillow.com/fayette...). That's worth considering.

Also, is your $30k appreciation just the current zestimate minus what you paid? That's not reliable. Zillow is notorious for overestimating value.

Generally speaking, I would advise keeping a cash flowing, appreciating property unless you really need the cash or can invest it more profitably elsewhere. But also consider whether you've gained enough equity to justify a cash-out refi or get a HELOC if you need cash. Maybe not, but worth thinking about.

In this particular case, there are no payments. I paid cash for the property. But probably waiting the seasoning period (not using the delayed financing exception) in order to get all cash out, not limited to the acquisition cost. By the time rehab is done, it will be a few months from the purchase date anyway.

But my question was more general, not only specific to this current deal.

Thanks!

If the seasoning period for a cash-out refi is 6 months, do I need to wait 6 months to apply for the loan or does it just need to close after no less than 6 months? The latter makes more sense, but these rules aren't always rational. :-) 

Let's say I purchased a property on November 15. Six months later is May 15. Do I need to wait til May 15 to apply for a refi, or can I apply, say, April 15 for a disbursement after May 15?

Here's another thought: Alternating BRRRRs and flips. If you have limited funds and need to recycle them through multiple projects, leaving cash in each BRRRR quickly depletes your capital. Once you've rehabbed a property, get it appraised, and if too much capital would be left in, sell it and move onto the next BRRRR (potentially with 1031). Thus you you can go into the BRRRR with extra capital you've just earned, reducing the downside of cash left in. My objective is acquiring properties, not putting short-term cash in my pocket, but this strategy will keep me on a sustainable path of serial BRRRRs. Slower, but sustainable.

Any problems with this approach?

You can do it either way. If you have enough cash, that's better than borrowing for two reasons:

1. Getting a mortgage is expensive. Doing so twice means closing costs twice.

2. If you get a mortgage up front, you have to wait a long seasoning period (typically 6 months) before you can refi. If you pay cash, you can do your cash-out refi immediately after rehab -- but with one important stipulation: The loan can't exceed the purchase price. So in your example, you could only borrow $180k, still leaving $30k in the deal. You can always borrow the full $210k later... And it's better to leave only $30k in the deal at this point than the $66k you'd leave in for 6 months otherwise.

In this simple math in #2, I'm ignoring closing costs and such. Also, consider you may be taking a couple of months to get quotes, hire a contractor, wait for them to be available, and then do the work. So the remainder of the 6 months isn't so bad.

If the value of keeping most of your cash is greater than the cost of an additional closing AND you can afford to wait 6 months to refi, then a mortgage up front is fine.