Investment Property HELOCs Come With Terms That Kill the Deal
Real estate investors struggle to access flexible and appropriate financing for property upgrades and expansion. They face challenges like lender unfamiliarity, restrictive HELOC terms for investment properties, and difficulty securing loans through unconventional structures like irrevocable trusts. Finding suitable lenders and navigating complex paperwork are common frustrations.
SOURCES (60)
“Is this common for a seller to sell a home where the buyer is assuming their existing mortgage and paying them the equity in cash? How hard is it to switch the seller for the buyer on an existing mortgage? I have a client asking…”
“no, it increases equity. It is a drag for “return” on equity but that isnt the same thing. Increasing equity is never bad, but may be a signal it’s time to leverage if that’s your goal.”
“Im a gc and have also bought 60+ homes... This guy is spot on with everything. Unless you can get an engineer to sign off on it, your chances of getting a conventional loan are essentially zero. If you're able to pay cash for it then lowball the hell out of the seller. "Foundation issues" aren't always as bad as people make them out to be, just like mold, people just repeat what they've been told... But they can be. This might not be a good choice for a first investment pro”
“Hi there We have two projects upcoming for our house that we bought end of last year. We have a $100,000 garage we are building this fall and a barn that we estimate to be around $50,000 in the spring. Currently, we have enough cash to pay for the garage in full in our HYSA without touching our 3 month emergency fund. We have chose not to invest that money with plans of the garage build. Both have secure jobs. After maxing our ROTHs, 457b, extra $500 towards mortgage principle a month and $500 i”
“You have cash flow, the principal reduction is just a nice bonus. You could refinance into interest only DSCR’s to increase your cash flow if the principal pay down isn’t enough to be worth it for you. You could also apply your cash flow to the principal if you wanted to pay it down quicker. Keep in mind the time value of money - your payments will stay the same yet rent will continue to increase YoY.”
“I definitely look at the amortization. I have a 5 and 10 year hold plan and calculate what my net back would be if I sold at those intervals. The reduced loan amount is one piece of that puzzle.”
“You lose out on interest payment deduction, and won’t be able to scale faster without using debt(unless you rental income is massive per month), but it is what you are comfortable with I guess”
“I think I would focus more on the value of the property vs what is owed. Paying down principle doesn’t necessarily mean that your equity increased.”
“Correct, the bank rate is based on your individual contract with them, where they set the rules and choose how to change them on their own terms, whereas MMF more closely approximates the going market rate https://thefinancebuff.com/goodbye-banks-credit-unions.html”
“And dont get me started on people that think real estate is passive income. Yeah its passive some of the time but unless you just own a reit the landlord life is full of spontaneous labor lol.”
“Its more than that for a lot of people. You cant get homeowner rates on investment properties unless you are taking over notes or have a source for really cheap money. Not many people can get 5 percent loans on a rental currently. I will probably use margin from my robinhood account to buy my next property just because its at 5 percent and i attack it relentlessly so im not worried about a rate jump if it goes up ill revaluate but im not putting myself in danger of a margin call if i keep my mar”
“Well in my families case my mother and father had lots of rentals and then they got divorced and split everything. My mother was an experienced land lord but she was terrified of debt as a 40 something woman whose fall back skill was teaching. So what we did is consolidated the equity and set her up with a home to live in that was free and clear and 4 homes that were free and clear and rentals. The income from the rentals was sufficient to live on and the equity still grew even after they were p”
“Principal paydown is a real increase in equity and belongs in total return or IRR, but it isn’t cash flow and shouldn’t be folded into cash-on-cash return. The interest-heavy split mostly describes the age and amortization schedule of the loans, not whether the properties are performing well. Your gross rent exceeds the mortgage payments by $4,297 per month, but what do the four properties actually leave annually after vacancies, repairs, capex reserves, utilities, management or an allowance for”
“Why do you need paid off investments to retire on? You've accumulated so much equity and depreciation recapture in these scenarios that it never makes sense to sell the property and it can turn from being a good investment into a loadstone investment very quickly. This hold till you die strategy is terrible. People think they are being long sighted but they are creating compounding problems by holding onto these properties. Stale equity has a negative effect on your investments. If you want”
“I focus primarily on Net Operating Income and Cash on Cash. If NOI / Property Value is greater than your interest rate, then you want to maximize leverage. If it's not then you want to reduce your leverage since you're borrowing at a cost greater than what you're earning by investing the proceeds of the loan.”
“Interest can be deduct from income, principal can't. When there is enough appreciation and you can take out more loan. Investment return in RE = leverage + cash flow”
“Wild Take: Principal paydown actually makes your investment worse. Not only does appreciation make your investment worse, but then you double whammy it with principal pay down. It's like two strikes against the effectiveness of your investment. Why do people focus on cash on cash? Because it's spendable/investable money. Principal paydown and appreciation just sit there and does nothing. Each dollar in equity you gain is making less of a return than the intial money you put in to the inv”
“This is why I only cash buy / add rental properties when I can afford to 100%. Houses don’t go up in value like they used to and property tax on non primary residences is awful. numbers don’t work for me if there is also a loan attached for 80% or so of the homes value”
“I find it bizzare that people would focus on cash on cash returns. It's only looking at part of how an investment is doing. I would consider amortization and appreciation when evaluating a property and what to do with it.”
“Number one with a bullet is the value of the property. I lent a percentage of the property value. If I can lien multiple properties, I can do over 100% of the cash to close. If net worth is high, that's a lever we can pull as well. Years in business helps, but isn't a huge deal. Mostly it's based on the actual asset(s), and secondary on the net worth of the borrower.”
“My father and I jointly own our primary residence in California, 50/50. He is relocating and will no longer be staying on the mortgage as a co-borrower. I'm refinancing to become sole owner, buying out his interest and removing him from both the loan and title. Jumbo, non-conforming mortgage, balance around $1.2M, rate 3.125%, originated 2021 Home value around $1.9M Two separate structures on the property, our primary residence and a second house he currently lives in. Once he moves out, I&#”
“Went this route on my third property. a heloc only charges interest on what you draw, a cash out refi charges on the full amount from day one. figure moves fast, approval in minutes, funding in about 5days. ask if they do fixed rate for that 10yr term, a lot of helocs are variable”
“I like the fact idea of establish a new loan for a new purchase and pay the 15% -20% down payment. As long as the house cash flows, you should be able to qualify for an investment loan.”
“I need to get a new roof on my garage. The city is after me so it needs to be done asap. We have a few options and I am just looking for advice. We need to come up with an extra $8-9k to cover the expenses after taking about $3k out of savings. Current options are: We could borrow against the wife's 401K, we could take out a HELOC, Or we could take out a home equity or personal loan. The plan is for it to be a relatively short term loan having it paid off within a year. The research I'm”
“Yeah I’m definitely blessed but we’re trying to maximize cash flow now. I like the idea of SB-9 but I don’t wanna do any construction (scares me) especially with personal recourse. We don’t really need much appreciation, just cash flow. We have like 15-20% leverage on the entire portfolio”
“You can always refinance into a 30y if life changes but having an aggressive payoff with a lower APR is a good thing if you can swing it.”
“Yeah, can always take out a mortgage or reverse mortgage or whatever the home, too. There are fees, of course, so changing your mind about how much or what strategy to use on it frequently is not a good idea, but a home does have some liquidity.”
“In my opinion, the best play is Property 3; it's your best refi pick, honestly. $260k value, only $60k owed, and it's been cash-flowing solid for 10 years, so it's proven, not a gamble. Pull equity there. Property 1 being vacant right now is a bad time to touch it, no income to help you qualify. Get it rented first. Property 4 already used your HELOC, so that's less about financing and more about getting it rehabbed and rented so you can refi it once it appraises near that $230k.”
“what about getting an 7 ARM for refi? that would affect cash flow less at least for a few years”
“From my experience, I keep the rentals that produce good income and are easy to manage. If I have a lot of equity tied up but the return is getting low, I look at whether some of that money could work better in passive investments like private lending. I always compare the return, the risk, and how much work is involved.”
“Solid chart. One thing I'd add for anyone actually using this some of these are a lot easier to screen for upfront than others. Ownership concentration, commercial space, and obvious litigation you can usually check early. The financial stuff like delinquency, reserves, and special assessments is harder to get a read on without the HOA financials and questionnaire. So before getting too deep into a condo deal try to get those documents as early as the seller will allow. That's usually wh”
“I have $15,700 on a brand new HELOC for needed home renovations, currently at 7.89% APR. Minimum payments will be interest only (just over $100/month), although I plan to pay $170/month as a nice round number. I will pay more aggressively as my financial situation dictates. I have $10,000 cash in an emergency fund. I do not want to put this towards the HELOC because it is an emergency fund. Instead, I was thinking about putting it in Robinhood, investing in SGOV, and leveraging $5,000 in margin”
“Would definitely look into a Heloc. It lets you borrow money using the built-up value of your home as collateral”
“Definitely wouldn’t pay off. You could literally put it in bank CDs for a guaranteed 4% return AND have the cash available for any emergency!!!”
“From my terribly bad incorrect math of 170/1.85/12. You’d pay it off in about 7.6 years at your current rate. Call it 9 years to account for interest. Maybe consider at which point in your life do you want the mortgage gone? Hypothetically you’re 30 - do you want the mortgage out of your life when you’re 40? Or would you be okay with carrying it until you’re 50? No one can tell you what financial burden you’re comfortable with. You likely would make more by opening a brokerage / Ira account and”
“Most lenders will not loan 80% LTV on an investment property. 60% is the norm. One can use leverage to buy equities just like in real estate. The investment interest is deductible against investment income, just like the real estate interest is deductible against real estate income. Variable rates are about the same (currently around 5% for fatties borrowing for real estate or equities. Leverage works even better when the asset is appreciating at 7% rather than at 1.5%”
“If you want to make more money, invest the cash or even just let it sit for now in short term bills. If you want to lose money pay off the debt. Simple.”
“Agreed - can get in a lot of trouble if you don't know what your doing and don't fully read the extensive language in HOA docs and rules (I've learned and am learning this lesson the hard way personally). PS - some DSCR programs go well below $100k now, down to $75k some places and even $50k can be available now too. Generally you'd want to bundle in a portfolio a lot of smaller value collateral though”
“I owe $550k on a 5.75% FHA 30 year. The house appraised at $700k, for whatever that’s worth. If I’m going to refi into a conventional, I was also thinking about putting down $200k towards the principal IN ORDER to bring down payment and make the house affordable to rent. So I can move out and hold hold hold. My mortgage is $4600 rn nobody in their right mind will pay for that, I’m in SoCal 4B2B. • No I don’t have a 401K • I only have a Roth IRA. I max that out, and throw in the same amount into”
“Was curious what I should do, but I’m leaning towards a personal loan. I have a driveway that I need done before the fall which is going to cost between $9,000-$12,000 and I also have about $3,000 in credit card debt I’d like to pay off. Let’s say all in on the high end $15,000 to satisfy both goals. Would it even be worth taking a Heloc out for that or should I just go personal loan route? submitted by /u/jcb451 [link] [comments]”
“non-warrantable obviously no-go for conventional, but vast majority, I would say 90%+ of DSCR Lenders are fine with it”
Non warrantable. Or issues with repairs needing to br done.
“You need a different loan product like a commercial loan or dscr. I just closed on a house with 6% seller concessions in June.”
“I’d be careful about pulling equity from the properties that are already producing solid cash flow. Before refinancing or selling, I’d compare the actual net proceeds from each option and look at how the new debt would affect cash flow across the whole portfolio. Property 4 might also be worth evaluating separately since the renovation could create additional equity”
“My husband and I want to do a complete overhaul/addition to our home. We have plans but had another baby and want to wait until they’re out of daycare to take on a HELOC which will effectively double our Mortgage. We estimate daycare is about 4/5 years. Total renovation is $600k, planning for half in cash which is why we have enough saved to potentially use as down payment. For renovation we will need to move out for at least 6 months. Rent in our area is expensive and it’s really hard to find p”
yeah, why 29% down on a home where you're already at 80% loan to value?
“It will be difficult depending on what kinda loan you want to take out of your property equity. Cash out refinance or a HELOC.”
“You'd get a HELOC or home equity loan. But your debt to income still matters and you typically can get 80% loan to value maximum borrowing. And the interest isn't deductible. And you'd still have to qualify for the investment property with the HELOC factored in. You can still do it but you probably won't be able to get a HELOC as big as you think or an increment loan as big as you think.”
“Given your declared goal, since primary home mortgages tend to have lower interest rates than investment properties, I'm not quite understanding the reasoning behind putting more down on the parent's house than your mortgage requires.”
“I wouldn’t sell a cash-flowing property or refinance everything before knowing what the next deal requires. You have significant equity across the portfolio, so I’d compare accessing equity from one property versus selling one, including the new payment and how much cash flow you’d lose. The best option is the one that gets you the $150-200k without killing the cash flow that made the portfolio work in the first place.”
“I’ve learned that appreciated properties are not always the best use of your money. Look at your actual returns, cash flow, risks, and goals. Rentals can provide stability, while private lending or other investments may offer new opportunities. The key is finding the right balance and making decisions based on your numbers, not just market trends.”
“What about a DSCR portfolio? We can do portfolios with 4+ properties. Downside - if you might sell one later it’s harder to split up. So needs to be all properties you intend to hold. Will eat up cash flow but allow you to pick up another property or two with that cash.”
“there are few people that can afford monthly to actually put down 5% on these houses and afford to live a decent life, invest for a proper retirement and properly save for a used car in the future/potential/ student loans/ kids/food/utlities etc. This premise is ridiculous. Sometimes you have to choose your priorities. New (to you) car savings or house savings? Extra retirement or house savings? Also, having kids is a choice. If you choose to have kids before buying a house, then news flash: sav”