Let me start out by stating I am new to Real Estate Investing
I have a property I bought years ago, paid it off fully years ago and now enjoy some Passive Income, but ALL done by complete accident. (God I love Real Estate…even Stupid people like me can make money)
Now as you wonderful folks educate me, I am thinking that I should either do a 1st Mortgage or check on taking a HELOC against the equity in the place. I want to have this available for investment into ‘Other’ properties, Carry costs, closing costs, Capital improvements etc…
Property is in Florida with Estimated Value $385-$390K
So my questions are: (There may be more so if you respond feel free to add advice)
- Which one is better? (tax purposes, interest rates etc)
- Do I need to do this with a local to property lender? Or any National lender will do?
- What interest rate would I be looking at?
- Any recommendation(s) for Lender with low interest rate?
- What Percent LTV should I expect? (60, 70, 80%)
Thanks in Advance…
:help:
I would recommend a HELOC. The LTV you can get is based on if this is a primary home or investment property you want to take it out. I am gathering it is investment now since you have income from it.
HELOC will be better since you have low closing cost (less than $500 many times) and it acts like a credit card. You can draw money as you need from it with many institutes and make payments on the borrowed money instead of all of it. So when you find a deal and you need the cash, you can grab it to close quick. Interest rates are around 8-9% I believe now. Many banks offer interest only HELOC as well so you do not have to make principal payments on the money. You can always use a HELOC to get the property and then refi it into a loan when ready and pay off the HELOC.
taking a loan out on the your house will mean you owe money right away. Why pay interest on money your not using now. Plus your closing cost will run you 3-4% on the property. So a 300K refi can cost you over 10K. Does not make sense.
As for your LTV on the HELOC…you should be able to get 75-90% depending on the bank. I recommend calling banks up oppose to mortgage brokers since they make no money doing these. Check out Chase, Citibank, Bank OF America, SUnTrust, Wachovia, etc… I call them all or stop in there banking centers of go online. They all list there requirements and LTVs generally.
YRush2000 - Thank You for the informative reply
How’s about the thought of doing one of those No Cost Closings? I know they bury the Closing costs into Mortgage by adding 1/8 or 1/4% or something along those lines, but if there are No Closing Costs, and I can get a much lower interest rate (Can’t I). So, wouldn’t it basically be similar to a Refi of the HELOC you describe? Because an eventual Refi would have $?? Closing Costs as well…
I also never thought about the Interest Only…Are you suggesting an Interest Only HELOC or Refi, and basically once I invest and start getting a Cash Flow, make extra payments on Principal to paydown ?
My thinking is to get 75-80% LTV which would be say approximately $288K. Use $250K for investment property(s), leaving $38K for debt services, capital upgrades, etc…
Also, doesn’t this restart a Tax depreciation of property?
Again, I am just throwing out ideas in hopes of figuring out what would be correct thing to do, with minimal jeopardy to Collateral Property, and easiest payments etc.
BTW - a local Florida Realator is suggesting 1st Mortgage approach, but I do like your HELOC suggestion in that it acts like a Credit Card, and no payments till I pull the trigger. hmmmmmm
Thanks in Advance
Since its an investment property, tax deductions are done differently but and interest on a HELOC will be an expense for deductions as well but talk to your CPA about that.
I recommend HELOC especially on a paid off house. Why pay a loan on 250K now, when all you may need is $50K or 100K. Plus if your looking into rehabbing, you may just want to use HML and use your HELOC to help carry the HML payments. I know your paying more money, but still using someone elses at the same time and carrying a less debt load in some ways with smaller payments.
I use HML and my credit card to carry the loan for my rehabs since I can use the convience checks and get charged $75 to use and generally no interest for 6-12months depending on timing. I use the checks to cover payments or rehab cost the HML will not and its usually less than $15K out of my pocket and really no interest to worry about…Still OPM just have a higher payment on my card but dont mind since i pull enough out to carry that. What I like to recommend at times is work on getting high credit card limits with a excellent credit card. I have a Chase with $45K limit and a Citibank with a $60K limit. I use both of them to my advantage for leverage at all times…
Now back to why no mortgage or refi…You can get a no cost refi from the bank, but they throw the interest into the rate. So instead of 1 point and the par rate ,you getting a higher rate which can cost you few hundred a month. But if its a short term loan, do that, figure out how much the loan would cost over the time frame you need it and see whats cheaper. But you need to remember, when you refi, you still have to pay all the title company junk fees which will add up, have to pay your 2 doc stamps which can run $2000-$4000 on your loan, title ins,etc. Then you want to make sure the bank will not require you to escrow your taxes or thats more to come up with really…
Still with HELOC and use that. Take what you need so your not paying a higher payment each month.
yrush2000
Again thanks. I think I am starting to lean hard towards a HELOC.
Another thing I am thinking about doing is…maybe doing a Quit Deed on the Paid off property to change Title to the LLC we are starting.
Does that sound like a reasonable and prudent thing to do?
Finally, before I start calling around about HELOC what is better/different between 2nd Home vs. Investment Property? And why do some say that optimum amount is $50K? I’m thinking about trying to get $280-300K.
David
Leave you house alone. If you have good credit. Do 100% financing? Get option arm with interest only program for tax advantages, since rates starting to go down. It is a buyer market now.
? You take money out of your house … costs… buy another property …costs . Where is the leverage? Find a property that has some equity and appreciate a percentage each year. That is leverage.
I would look to do a standard first mortgage.
Many of the “no cost” HELOCs require you to take out atleast 50% ± to ‘no closing costs’. HELOCs are a little cheaper to get done typically, but they can cost a bit more interest rate-wise. But, you will still face the same FL state taxes and closing costs for a HELOC vs. a First Mortgage.
Right now at your loan amounts, your going to be in the low to mid 6’s, which might be 2-3% better than where you will be for a HELOC.
For a 200K loan, a 2.5% difference ends up to be a $5,000 convenience fee/yr.
I’d take the unused funds and stay liquid by keeping them in Stocks or even a little more risk-oriented bonds. I’m sure that you can earn 6% pretty easily to offset any interest costs (hopefully more).
I would find a lender who will let you do a 100% financing on the purchase of an investment property and give them a 20% silent collateral position on your primary…no costs at all to secure their position plus a decent rate on the subject property. I would not take money out of your primary residence to buy investments with. You have many many many other options…just think outside of the box.
Good Luck.