HELOC? What do you think?

General Real Estate Investing
1

I am partnering with an investor on a deal here are the numbers.

Purshase Price: 91,000
FMV: 108-110k
Repairs: Virtually none, turn-key, same owner for 12 years, beautiful home, beautiful landscape

With that said, we just want to buy and resale quickly for FMV. Here is my question, is this a good place to use a HELOC. My partner owns a home, FMV-150k, free and clear, how much do lenders usually give towards a HELOC if the property is free and clear. We are thinking of just taking out a HELOC and then reselling the property and splitting the profits. I found it and he funds it. What am I missing here, I am a complete newbie, and have not completed a single deal, so I am all ears to any and all feedback.

2

Make sure you (and your partner) are legally covered. Even the best of partnerships have turned soured. You want to make sure your interests are covered in case of the inevitable. Just think of yourself as a CEO of a company: YOU.

Also, the number seem a little tight to me, especially, if you plan to sell with an agent:

$110k - 15% costs (buy,close,hold) = $93,500

$93,500 - $91,000 = $3,500

$3,500 / 2 = $1,750

Don’t become a motivated buyer!!!

3

wow…15% for costs…I was thinking the following.

Purchase: 91,000
Closing costs: 3% 2500-3000
No Rehab: 0
Sell FSBO
Closing Costs (re-sale): 3% 2500-3000
Holding costs 3 month: 2000
Resale: 110,000

110,000-91,000-3000-3000-2000=11,000

Just an easy buy and resale…I may be wrong on some of this, so please feel free to re-direct me…

Thanks.

4

6% of the 15% was for RE commission, but since you’re selling FSBO you can negate this part. Also, the 15%is a general rule and not an exact figure. It could be more or less, depending on insurance, property tax rates, int rate on borrowed funds, etc. If your numbers are correct, $11k is a decent total, although, I’m not sure of your take in the deal (50%?). And, unless you’re in a good/excellent market, selling FSBO can still be hard on your resources (money and time). BOL!

5

My bank will HELOC 80% of my equity.

6

HELOC’s were great a few years back but now they are getting to the point where it is almost not worth playing around with them. I checked out a HELOC on my own house the other day that was at 3.99% for 2 months then it jumped to prime plus 1. I decided it would be better to refi and use there cash at 6.99% then to HELOC!

7

I have to agree with REO, the rates are ridiculous.

8

i purchased my first home with my parents. they took a HELOC out on the house which is at 7%.

i’d like to refi but if i have to pay 6k in closing costs…would that really be worth it if im selling in 18months?

that’s the current issue im dealing with…the pros and cons.

9

The major disadvantage of the HELOC is its exposure to interest rate risk. All HELOCs are adjustable rate mortgages (ARMs), but they are much riskier than standard ARMs. Changes in the market impact a HELOC very quickly. If the prime rate changes on April 30, the HELOC rate will change effective May 1. An exception is HELOCs that have a guaranteed introductory rate, but these hold for only a few months. Standard ARMs, in contrast, are available with initial fixed-rate periods as long as 10 years.