Newbie ?--Using Home Equity Loan to rehab first house, crazy?


Like many others, REI is something I’ve wanted to do for many years but I never took it seriously. So several months ago I decided that it was time to take action. I’ve read numerous books, listened to dozens of CD’s and podcast, read multiple forums, paid close attention to my local RE market, joined a REI Club, attended their classes and started networking.

I’m tired of talking so it’s time for me to get my first house. Like many others, I can read all I want but I can only truly learn from firsthand experience.

I’m interested in rehabbing but I have no money. My house is worth around $125-130K and I currently owe about $40K on a previous Home Equity Loan which I used to remodel the inside of my home, pay off my car, and pay some credit card debt

If I get a new HEL I would like to pay off my credit card debt($5K), previous HEL(which would be a requirement), and take out and additional $10K-$20K to form an entity, create a business checking account, purchase my first rehab through a hard money lender or private lender, and anything else that would be needed.

MY house:$125K-$130K
Equity: $85K-$90K
Current HEL: $40K
Credit Debt: $5K
FICO: 791 (as of two weeks ago)
Current HEL payment: $412 a month @ 7.25% for 30 years( can afford up to $500)

I’ve found a few HEL in which I could take out $70K-$75K and keep my payments under $500 a month with lower rates.

I’m not crazy about taking out equity to finance an investment (rehab) property but I just don’t have the cash on hand and I feel very confident in my ability to make this work.

My Questions:

  1. Is this a crazy idea?
  2. How much would you recommend I take out to form an entity, create a business checking account, purchase my first rehab through hard money, etc?
  3. Have any of you on this forum done a similar thing?

Thank You for your time and ANY suggestions will be most appreciated!

:beer :beer :beer :beer :beer :beer :beer :beer :beer :beer :beer :beer

I did my first rehab that way. It’s much cheaper than hard money, but you have to be able to accept the risk. If you do it and constantly worry about it, it’s not going to be worth it.

I think this is a very risky plan in today’s market. Find and assign a few deals and build your war chest then find a Hard Money lender that will finance 100% of the deal. it may be a bit more expensive (not that much in reality), but you will not be putting your house at risk.

Just my opinion!

My wife and I bought our first rental property by putting the down payment and initial rehab costs on our credit card at a low rate. Our bank allowed us to have the amount we requested put into our checking account. The amount borrowed was placed on our credit card at 3.5% for the life of the balance. This has worked out well for us so far. We have a good income which allows us to aggressively pay down the balance. We found a good deal, but didn’t have the cash on hand so we had to get creative.
In your situation, just make sure you can handle any carrying costs involved with the property in case it doesn’t sell as soon as you’d like.

Thank you to all of you who replied.

As of right now I’m about 75% in favor of getting a home equity loan to help start my business.

I should of stated that I’m in the North Texas(DFW) area and our economy is relatively strong and house prices still very affordable when compared to the rest of the country. THis fact makes me feel more comfortable, albeit slightly, to go ahead with my plan.

If anyone else wants to chime in please do so!

Thank You :beer

The thing I noticed is that your current HELOC has a balance of 40k and the payment is $412. I dont see how you are going to keep your payment at or below $500 when you want to add another 35k to your balance. On that same subject u also said that u used your current HELOC to pay off some credit card debt and now you want to do the same thing again. Keep in mind that your home is not a piggybank. All you are doing is moving that debt around. Hope this helps.

Thanks for the input.

I completely agree that my home is not a piggy bank and I’m sort of playing with fire if I choose to take out more to invest with.

The previous Home Equity Loan was taken out about 3 years ago and the debt which I paid off was about $2,000 on a credit card and about $8,000 on a car loan that had a ridiculously high interest rate(due to the fact my credit was poor at the time I purchased it) but the rest of that money went into fixing up my house and I feel it was well worth it.

I haven’t settled on an amount yet but $75,000 was the highest I would go and I’m currently thinking around $65,000. CitiBank has said they could give me a fixed rate on a $75,000 HEL with no points or anything and my payments would be $478. It does seem a bit too good to be true.

The current CC debt I have($5,000) accumulated within about a 4 month period(busted ankle, dog needed surgery, automobile work, helped a family member, etc.) after several years of no CC debt after the first HEL.

Like I said, I’m not crazy about it and I definitely understand what your saying.

Thanks for the input, it’s always appreciated. I will keep ya’ll informed :beer


You could take out what you can for a HEL and stuff it in the bank. Don’t touch it! Keep it there in case you need it for actual emergencies. Then you can try to get a HML for the rehab. If you find a good enough deal, a 65% LTV from a HML could cover purchase,rehab & closing costs. If your market is still good, your holding costs may should be O.K. But I assume this would be your first rehab. That means it will take twice as long and cost twice as much ( rule of thumb). If all goes well, you can sell it quick and use the profits for another. If homes are not selling quickly in your market, you have to account for that. I hope this helps. Good luck.