All Forum Posts by: Ken Sellers

Let me first say thank you to the BP community. Became interested in REI 6 months ago and just closed on my first property, a 5-plex, on Monday. BP has certainly been a great resource....so TY!

I’m already on the hunt for my next deal, and it appears i might have found the next candidate. My strategy for this one is to take on a partner to pay 50% of downpayment. I will handle all of the managing, making this a completely passive endeavor for my partner.

So i was wondering what the equity breakdown percent-wise typically looks like in these scenarios? Im talking in respect mainly to cash flow split, but also how cap-ex would be split, as well as appreciation. Any info is appreciated, thanks guys!

To clarify, your saying the cash out REFI is the better option as it pertains to my situation? 

The other con of a HELOC that just crossed my mind is that it would technically be a second mortgage on my house (please correct me if this is not the case). So when it came time to apply for additional mortgages on properties, they would be in 3rd or 4th place (if i want to buy multiple). This, combined with the potential for stricter lending practices in a down economy, could make it very difficult for me to obtain financing. I am very new to this, so please let me know if these things make sense.

Thanks for the reply Andrew. The specifics on my situation are that my house principle is 245k. It will appraise for at least 450k, with potential for +500k. My lender said 80% LTV, so i should be able to access somewhere in the neighborhood of 120k-150k. I am in the process of a REFI right now, going down from a 4.625 to a 2.625. If i opt for a cash-out REFI, that 2.625 will increase to 3.25.

The main thing that worries me is lets say hypothetically i open my HELOC in the near term with the intention of waiting 6-9 months for the market to come down. There is a recession, and home values do come down quite a bit...and lending becomes tighter. I go to make my move and purchase properties, and the lender closes/freezes my HELOC due to the economic conditions. Is this a realistic scenario?

On the flip side, if i do a cash out REFI right now....i get my hands on capital and lock it up now to ensure i have it. I also get a long term fixed rate on the money. But i will pay the 3.25 interest on the $$ until i use it (though i would park it into a ~1.5% interest savings account to mitigate this cost), and my mortgage will rise significantly, without being able to take advantage of interest only payments that HELOC's provide.

Right now the general consensus is that there will 100% be a dip in the market in the coming months/year. And depending on what kind of dip that is, having liquid cash to capitalize will be crucial. So im just trying to decide if i should make that my number one priority right now, even if it means slightly worse terms. 

@Joseph Mallon

In my situation, where im already refinancing. Do you think the better play is to do a cash out refi to tap into equity, or do a traditional REFI and open a HELOC shortly after?

I have a similar decision on my hands. I have a ballpark of 200-250k equity in my house and want to use it for a down payment on my first investment property. I am in the middle of a REFI right now and am unsure if i should switch it to a cash out refi (interest rate will rise from 2.6 to 3.25), or do a HELOC after the REFI.

Hello everyone, i am new to this site and this is my first post, so i would just like to say hi and thank you guys in advance for any information your generous enough to share. I have read numerous information about the subject in question already, including videos from this site. But since every situation is very specific, i would like to give you the details on mine. I currently own one property, which is the house me and my wife have lived in for 10 years. Due to the historic low rates, we are already in the middle of a REFI. We were at 4.625, and are currently locked into a 2.625. Shortly after starting the REFI process, i became interested in investing, which in a very short time has lead me to the conclusion that it is time to buy our first investment property. I still have questions on my overall approach and strategy, but i will leave those for future posts and keep this focused on my current decision point-which is whether i should use a cash out REFI while im in the process of refinancing right now, or open up a HELOC afterwards, both in regards to tapping into the equity on my house to fund a down payment on the investment property. In terms of equity, we havent had an appraisal yet, but it should be in the 200-250k range, and at 80% i should have access to 120-150k.

-My current REFI numbers are a 245k principle on our house @2.625. My lender told me that if we chose a cash out refi for ~100k, that rate would go to 3.25. I have not got quotes on what a heloc rate would be. But our debt to income is very good and so are credit scores. I know Heloc rates typically tend to be a bit higher, so im working off the assumption that ours would be somewhere around 4.5. Helocs also come with the risk of the variable rate.

So what do you guys think? Is reducing the interest rate on the 100k+ in equity worth bumping my 245k house principle up ~.5%? 

My thoughts: with the uncertainty surrounding everything due to covid, tapping into our equity vie cash-out REFI and securing it now to have liquid capital seems safe. Ive been told that in extreme circumstances, lenders could freeze your access to HELOC....which would deny us access to capital. Also we would eliminate the risk of the variable rate associated with the heloc. However, the HELOC allows you to make interest only payments for the draw period. If i go with a cash out REFI, i will have to make payments on that equity every month, which could limit cash flow opportunity. Any variables i am not taking into account?