Financing in Dearborn>Question Details

Dave, Other/Just Looking in Dearborn, MI

Purchasing rental property

Asked by Dave, Dearborn, MI Mon Aug 25, 2008

Would it be better to use a home equity line of credit (h.e.l.o.c.) on my principal residence to purchase rental property for cash, fix it up and then do a cash out refi. (Assuming I can pull out 75% of the appraised value and recoup all the money I have invested into the property) Would there be any savings in closing cost, appl. Fees, PMI, etc. verses getting a mortgage from the start? Added info, I have a job, own other rental properties and have a 700 credit score.

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I'm not an expert in investments but I would have to agree with Derek on this. Using a primary residence to purchase rental property could end up costing you both homes. I also don't believe you have the equity you think in your home because values in Dearborn and Dearborn Hgts have dropped so much since 2005.

I suggest speaking with your financial planner and have them go over your options before investing. I also suggest joining one of the area Real Estate Investors Associations. There is one in Wayne, Oakland, Macomb, and Livingston the last I looked.
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0 votes Thank Flag Link Tue Aug 26, 2008

There are arguments on all sides of this issue. I think the answer is simply this ... consult with your trusted tax / investment professional(s) to see what makes the most sense for you and your situation

As a licensed Real Estate professional, and with all due respect to my fellow Real Estate professionas, I would never encourage someone to take the equity out of their primary residence to invest ... especially to reinvest into Real Estate. Had I done that three years ago before property values dove some 25% or more, they would be at my doorstep with gun in hand, as they would have likley lost on both ends. We THINK things are at or near the bottom, but in this world, one is never completely sure what is going to happen to our economy and as such, you need your tax, investment, and/or financial advisor giving you their professional advice when it comes to removing equity from your home for non-essential living costs.

Best wishes to you in your endeavors.
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0 votes Thank Flag Link Tue Aug 26, 2008
I have an excellent mortgage contact for you ... someone who works with tons of investors and can really help you get creative when the need arises. Shoot me an email, I'd be happy to send you his contact info.

On a side noie, not sure where you're looking to invest, but I have several Detroit properties a few of my out state investors are looking to unload. They are selling in bulk for a deep discount or individually. I also have a big home in Dearborn Heights that while pricey right now, I do believe they intend to drop the price.

Lisa Bender
Keller Williams Realty
0 votes Thank Flag Link Tue Aug 26, 2008
If you currently have a HELOC with an available balance (keep in mind many banks have cut off existing lines of credit) AND your time frame is 6 mos or less then you are probably best off going that route. I'm assuming with a good credit score your HELOC is probably around prime plus 1% or so, which would put you at about 6%. The going rate for an investment property with 25% down is around 7.25%. Doing it this way would save you the trouble of paying closing costs twice.

As far as the refi goes, current guidelines allow up to 80% cash out on a refi, although guidelines could change. You're probably going to need 720+ credit to do that though on an investment.

Check on the terms of your HELOC to make sure you can still access funds and if so that would make this essentially a cash deal, which also may help you get your offer accepted easier. Good luck!
0 votes Thank Flag Link Mon Aug 25, 2008
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