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HELOC for Real Estate Investing

Home Real Estate Investing HELOC for Real Estate Investing

  • Sajimone Sajimone 
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    Status: Physician, Small Business Owner
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    Joined: 01/09/2016
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    I have some equity in my house that’s not doing much.   I was thinking about using the HELOC for real estate investing… mainly placing all cash offers to close quickly and hopefully obtain steep discounts or instant equity.   My local bank is offering a HELOC at the terms listed below.   Anyone have thoughts on this approach?   Also does anyone know of a better HELOC option with another bank?

     

    200k HELOC                                                   Option A                                    Option B

    Upfront Fees:                                                $1,413.60                                       $0

    12 Month Promotional Rate:                            2.24% (prime – 1.51%)        2.49%(prime -1.26%)

    Payment first 12 months

    (assuming use of $200,000)                           $373.33                               $415

     

    Permanent Rate after 1st year:                       3.75% (Prime +0%)              4% (Prime +0.25%)

    Payment                                                       $625                                    $666.70

    #34870 Reply
    Avatar GXA 
    Participant
    Status: Physician
    Posts: 215
    Joined: 01/15/2016

    I think having access to capital via a HELOC is a great idea.  I have done this myself for real estate investing, and then pay off the HELOC as I am able to.  In effect, you are getting a mortgage on the investment property, though this is being done by the HELOC rather than the property itself.

    #34881 Reply
    Avatar BadgerFan 
    Participant
    Status: Physician
    Posts: 1
    Joined: 01/28/2017

    Not sure I can give much insight regarding the use of a HELOC to fund an investment property.  It probably depends on if this would be a buy and hold/rent vs. quick flip, etc.

    regarding the terms on the HELOC products from your local bank, they look very good.  I have been in the market for a HELOC to fund a home remodel project and have not seen anything close to the rates you are quoting.

    Would you mind sharing the name of the lender?

    Feel free to PM me.

     

    Thanks!

    #34984 Reply
    Sajimone Sajimone 
    Participant
    Status: Physician, Small Business Owner
    Posts: 93
    Joined: 01/09/2016

    Appreciate the input! BBT is currently offering this option and I can’t find another bank that competes? Yes.. buy and hold for rental residential property. I guess two ways I would use the equity is either make all cash offers with steep discount but easy quick close which usually incentivizes the seller. The other more riskier option is taking my large equity to leverage a much bigger commercial loan to obtain income producing commercial property such as apartments buildings etc. I am considering a $400-600k heloc to obtain a 1.2-1.5 million property? Assuming reasonable cap rate above 10-12%, cash on cash after tax return, and manageable annual NOI to debt ratio? Then use the cash flow to pay off the heloc first. Anyone doing this?

    #35011 Reply
    Avatar Complete_newbie 
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    Status: Physician, Small Business Owner
    Posts: 804
    Joined: 01/03/2017

    Home equity usage to invest in property is done fairly regularly with the investors I have come into contact with. I will be doing this when I get to that stage in a few years. To me its a no brainer with the interest rates currently.

    #35012 Reply
    Avatar PenguinMD 
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    Status: Other Professional, Spouse
    Posts: 90
    Joined: 01/27/2016

    What about the risk? Could have a double-whammy if your investment property goes south and now instead of one property you could lose, you also lose where you live! Ack!!!

    Of course this all depends what type of investment property you are doing. Pays to do your due dillegence.

    Leverage cuts both ways.

    #35419 Reply
    Avatar Complete_newbie 
    Participant
    Status: Physician, Small Business Owner
    Posts: 804
    Joined: 01/03/2017

    What about the risk? Could have a double-whammy if your investment property goes south and now instead of one property you could lose, you also lose where you live! Ack!!!

    Of course this all depends what type of investment property you are doing. Pays to do your due dillegence.

    Leverage cuts both ways.

    Click to expand…

    No risk no reward. Investment = calculated risk.

    #35462 Reply
    Sajimone Sajimone 
    Participant
    Status: Physician, Small Business Owner
    Posts: 93
    Joined: 01/09/2016

    Agree. Don’t like risk.. don’t invest. Just recently closed a deal on a 3bed2bath home. 30k below comps… motivated seller! I already have a tenant after a month fixing up the place which my wife really enjoyed doing. Grooming her to be the r al estate professional.. = ). Cash flow will be about $700 a month..that will be a projected 15% return on my investment assuming a good behaving tenant? That does not include the principle paydown or interest deduction. Now I want take a part of my home equity to buy 4-5 more deals this year.

    #35510 Reply
    Liked by seattlee
    Avatar Complete_newbie 
    Participant
    Status: Physician, Small Business Owner
    Posts: 804
    Joined: 01/03/2017

    Agree. Don’t like risk.. don’t invest. Just recently closed a deal on a 3bed2bath home. 30k below comps… motivated seller! I already have a tenant after a month fixing up the place which my wife really enjoyed doing. Grooming her to be the r al estate professional.. = ). Cash flow will be about $700 a month..that will be a projected 15% return on my investment assuming a good behaving tenant? That does not include the principle paydown or interest deduction. Now I want take a part of my home equity to buy 4-5 more deals this year.

    Click to expand…

    Good deal. Does take work to get those returns. But it is a great asset class + you learn business skills.

    #35527 Reply

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