All Forum Posts by: Steven Griffith

Hi Bud,

Yes - Pentagon Federal Credit Union (PenFed) does this. I took a HELOC out on one of my rentals back in April of this year. Their terms for HELOCs on Non-Owner Occupied Homes are listed online, but terms for me were 80% LTV, 10yr interest only draw period, 20yr repayment. interest rate is variable, but minimum 4.75%. they did have an introductory rate of you pulled money the day you cloased of 3.75%. PenFed pays all closing costs - if you close the HELOC in the first 3 years, then you'll need to pay PenFed back the closing costs.

They are great! It took about 2-3 weeks from 1st inquiry to closing on my HELOC.

@Joe Kelly

Thanks for sharing! I really appreciate it. I looked through the website and as you mentioned could not find anything that would specifically exclude an old system. They also specifically mention covering R22 in older systems, which is awesome - that's another hidden exclusion by other companies. Next time I buy a rental with an old hvac, I'll give 2-10 a call and ask them if it's covered. Thank you for sharing!

@Allen Li

Good for you! What company did you use? I wanted a home warranty for the same reason - 16yr old HVAC system in a rental I was purchasing, on its last leg but still passed inspection. I called 6 different home warranty companies, including the big name ones and 2 local companies. ALL of them had fine print saying one of the following:

1) The warranty doesn't cover HVAC over 10yrs old

2) Damage/Replacement to the coil is not covered by the warranty

3) For systems over 10yrs old, they would max out replacement of hvac at $500

4) For systems over 10yrs old, if it needs to be replaced theY will only pay fair market value of the system today... so in my case, they'll only pay whatever a 16yr old system is worth.... so less than $1000.00

Replacing the system cost ~$6000. I did have 1 company that the salesman told me 'yes, it's covered' after I explained what I was looking to have covered. But when I read the fine print of the contract, and called to talk to someone in the service dept, they confirmed it was NOT fully covered. I talked to a manager and was told the salesman would undergo 'retraining'. I do think that if you're self managing, home warranties can be a one stop shop for maintenance issues, but as others have mentioned they're heavily structured in favor of the warranty company.

All that being said, I think it's a great idea. If you don't mind sharing the name of the company that you have successfully used to replace a 10+yr old HVAC system, I'd love to know for when I purchase my next rental! Thank you!

@Adam C Harris When I was looking for HELOCs for investment properties in April, all the HELOCs I was finding had rates higher than conventional mortgages - sometimes 2 percentage points or more. I think you're spot on in that, if you plan to repay the HELOC ASAP, then there are definitely long term interest savings available. But, if you're only planning on making interest payments during the Draw period and then allowing it to convert to a 20yr amortized repayment schedule, then I think you're better served getting a mortgage.

If you're looking at getting $100,000. A 20yr conventional mortgage would have you paying roughly $52,000 over the life of the loan. For a HELOC with a rate of 4.5%, you'd pay that 52,000 plus the interest only payments you'd been paying during that Draw period.  So in a 10/20 scenario, 10yrs of interest only payments followed by $51,000 interest paid over the next 20yrs.  If you get a traditional 30yr conventional mortgage with a rate of, say 2.75%, then you're only paying ~46,000 over the life of the loan.  That's what I was getting at when I mentioned initially to run the numbers.  

Also, thanks for pointing out the drawback to a HELOC - that the bank can "call it due" at any point, although as you said that's rare. I'll need to go back and look, but in that scenario is the entire amount due, or does it convert to whatever amortization schedule you agreed upon previously with the bank? It's also worth noting that the bank can also reduce the amount of your HELOC, without notice, depending on economic conditions. So you could be approved at 100K on April 1st, and then April 2nd the bank can decide that the value of your home has changed so your HELOC is only worth 50K now.

@Brent Coombs: Respectfully, HELOCs on Non-Owner Occupied Homes are still called HELOCs. HELOC just stands for Home Equity Line if Credit. The type of home wouldn't change the acronym.

@Tucker Cummings you can still find 80% LTV on Investment Properties for HELOCs. I know because I did this in April. Check out PenFed Credit Union. Non-Owner Occupied HELOCs with a10yr interest only draw period followed by a 20yr repayment period, all of which can be found on their website. When I was looking for HELOCs in March, there were a couple places that offered 90%LTV if it was a HELOC on your Primary. Just fyi!

@Tucker Cummings Great question! I've debated this issue a while for myself. Personally, I'd be inclined to get the HELOC, buy whatever your next property is after you've found a good deal, and then depending on interest rates potentially refi the HELOC into a conventional mortgage to lower the interest rates. Or, if the rates are comparable, consider just holding the HELOC and paying it down. As you've probably seen, HELOC interest rates are higher than traditional mortgages, but have all the flexibility you and @Paul Shannon suggested, including not having to pay interest when it's not being used.  While it will depend on your specific HELOC terms, some HELOCs have an interest-only draw period, meaning if you pay interest for 10 years (or whatever the draw period is), you never actually pay down the principal.

So, if i was in your shoes, I'd first check traditional mortgage rates vs HELOC rates. If you're looking at, say 5% on a traditional HELOC vs 2.5% on a mortgage, then run the numbers and see if the traditional mortgage makes sense in the long term. Whenever you go to refinance the "rental" house, the rates will likely be higher so make sure you're checking rental property refi rates. if the numbers all make sense, then I would do exactly as you suggest - get the HELOC, buy the next property (whenever you find a good deal), and then pay the HELOC down or refi the HELOC into a traditional mortgage.

So, summarizing - yes, a HELOC would allow you to have access to a line of credit and be able to move quickly on any distressed property.

@Travis Salley

About that, depending on what the bank would appraise the property as.

Just a thought! I'd prefer to keep the asset and access the equity, if possible. Esp if you've seen such high appreciation more recently. But if you need more than what you can pull out, then selling also makes sense.

@Travis Salley

Thanks for sharing! Do you think your Charlotte house will continue to appreciate? Are you looking for more buy and hold, or something different?

One thought I had is that: if you have that much equity but want to keep that Charlotte house, have you thought about getting a HELOC on the house to access the equity, but keep the asset? Your rent here or elsewhere would need to cover the HELOC payments, so it may cut into the cashflow in the short term, but if the house is going to keep appreciating this will let you keep the asset.

Another benefit to the HELOC is you don't have the same time restrictions as the 1031. Of course, using a HELOC pairs will with doing a BRRRR where you'd pull the equity out to pay off the HELOC sooner, so you're almost like your own bank, but if your rent is high enough the cash flow may cover the HELOC and stoll have room for profit.

Like I said - just a thought! Thanks for sharing your story, and thank you for your service!

@Maddan Pun

I second @Bryan Sanders. I've used Michael and Sons for both my HVAC and Plumbing repairs on my rentals and primary home in the past - they're great. Quality is outstanding, they warranty their work, they're available ASAP.... great experience. M&S fixed an HVAC problem for me for ~$180. Another company told me they couldn't fix it and that I had to replace the whole system. So.....$6,000 vs $180 repair. Go Michael and Sons! You could probably find cheaper service work... but you pay for quality.

If you're looking for a general contractor, I recommend High Country Construction. I had a renovation for them in Chapel Hill, and they did amazing work. No hidden fees, on budget, on time... they're my go-to company now.

Hi @Jorge J Gonzalez,

I've got 2 properties over in Chapel Hill, and I've used Michael & Sons for all of my HVAC work. They're great - prompt, they warranty their work, and they know what they are talking about. I had an HVAC issue earlier this year that another company quoted me $2500 to fully diagnose and fix. M&S came out and diagnosed the problem and fixed it for $180, and it was a different issue than what I was told by the first company. No problems since then.

I now use M&S for all my properties. I highly recommend!