Using a HELOC on your primary to buy rentals

 By: Adam Eiseman

If there was a lender willing to finance 100% of your rental property, how many investment deals would be you looking to add to your portfolio?

As long as the deal still cash flowed and provided a strong return, the answer for most investors would be endless!

In a market where lenders are stuggling to meet loan origination goals month after month, they are now pushing for more Home Equity Line of Credits. So much in fact, that we have uncovered a lender willing to finance 90% of the appraised value of your primary with an equity line. By drawing from the line of credit at a low interest rate, an investor could  cover the necessary 20-25% down payment to originate a conventional loan. Thus, producing a 100% financed investment property.

Details of HELOC

  • Line of credit for up to 90% of the appraised value
  • 700+ credit scores, 740+ for optimal pricing
  • No closing costs
  • Appraisal is only out of pocket cost, however refunded at close if the loan closes
  • Appraiser must find 3 comps within a 1 mile radius sold in the last 4 months
  • No reserves are necessary
  • Introductory interest rate of 3.75% for 1st 6 months
  • After 1st 6 months, interest rate is prime rate (3.25% currently) plus 1-4 points (pending strength of application)
  • Interest only payment first 10 years
  • After 1st 10 years, 20 year PI (principal + interest) with remaining balance
  • Must keep HELOC open for 3 years (however it may be $0 balance due at any time)

The question I recently received from one of our investors actually using this method was, "Can I still cash flow with the additional interest only expense?" Great question because at the end of the day as investors, it's all about cash flow and return while leveraging our buying power.

Let's take a $25,000 HELOC as an example……..

1st 6 Months -> $25,000 X 3.75% interest rate = $78 per month

After 1st 6 Months through Year 10 -> $25,000 X 6% interest rate = $125 per month

Years 11 through 30 -> $25,000 X 6% interest rate plus principal = $179 per month

An average JWB Real Estate Capital property cash flows $300 per month after all expenses, so the investment still has a positive cash flow with the additional HELOC expense. The best part about this is that you leveraged your resoruces and didn't have to come out of pocket for even $1.

What's a $175-200 monthly return off of $0 initial out of pocket cost? My calculator returned an error saying INFINITE!

We'd like to send a quick shout out to Joe and Jeng DeLaCruz for being the test clients on this process. If you have interest in finding out more about the HELOC options and chatting with our contact at Ameriprise, feel free to call 904-677-6777 or email info@jacksonvillewealthbuilders.com.

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