This is the first video of Mr. Phoenix's that I have watched. First, allow me to preface that I own five rental properties and have so for 15 years. While home equity might be wealth "just sitting there doing nothing" it also is not debt. Taking out home equity incurs additional debt. Will the home equity pay for in-full the cost of the rental property? If not, then you now have two homes with debt. I was fortunate to buy my properties between 2008-2015 when most investors shied away from real estate . Thus, I paid much less than when the properties were worth. Rental properties are NOT passive income. There are expenses which eat into the monthly profit and tenants do not always pay their rent on time. (Especially during the pandemic when government offices suspended landlord rights and the ability to collect rents and terminate leases.). Right now (2023) is not a good time for investors due to home price increases over the past three years. It is very difficult to find deals today. I do agree that owning a du-,tri-, or quadplex is an excellent way to generate income through real estate but one also must consider the greater difficulty in selling those properties due to a more limited market. It is easier to sell single-family units. Hold and flips are good but might pose greater challenges for married-w/ children families due to the fix-sell-move strategy. In short, personally, I would not advise on using a HELOC to purchase rental income. At my age (57), I don't see the sense in incurring more debt
Love this response and thank you for sharing personal experience! Although I talk about how to access home equity, I agree that you have to do your due diligence and right now is very difficult to do it successfully due to inflation, interest rates, and rental expenses that occur! I think it still can be done today (Accessing home equity to buy rental properties) but must be done with heavy due diligence and must align with goals. Thank you once again for a great response that viewers should consider!
I have two rentals with mortgages still on them. There is zero chance I would use a HELOC to get a third for many of the reasons you stated and some he mentions in the video. I’m almost done paying one off and should have the other paid off in 3 years. I’ll save 6-8 months of rent to get my zero debt down payment so inside of one year from paying off the rentals I can get my third with little to no real risk. Real estate is amazing but people need to realize the risks involved. 40 years old here, looking to be fully retired by 47.
Deals exist, you may just have to look a bit harder. Now, in 2024 the market is starting to come down. If you’re willing to put some working to it- you can still find some great deals on rentals. The thing is, with market values being high, if you purchased your home prior to 2017, chances are you’ve enjoyed a major increase in your home equity. We’ve found that by accessing the equity in our home, we were able to buy a few rentals out right, fix them up, generate enough rent to pay the mortgage and some to put back into savings to buy another home in 12 months out right. We were also able to get a lower interest rate and closing costs than we would have with a bunch of conventional loans on each investment home. It also gives you more bargaining power and an edge on competition have cash to buy with. I don’t think I’d recommend a heloc but I would recommend Home equity loans in these circumstances.
I just thought of something…buy an RV/5th wheel to live full time, park at investment property while it is being renovated. I have lived inside a house one time while i fix it up. It is not easy! Mentally you will always feel like, your living at work but by living in tour own domain at walking distance, it will be able to make live easier because you will be more focused and don’t have to spend time driving to and from property
RV Hacking, I love it lol! No but this is a great idea if you could potentially make the numbers work with the price of purchasing an RV. While the property is being renovated you don’t have to worry about living in the heart of the mess!
Question, when you say use your home equity to purchase an investment property, do you mean to use your equity to pay the full asking price of an investment property or use your equity as a form of down payment? Wouldn't you have to pay two loans this way (refinance loan + new mortgage loan)?
You can do it either way, but I was referring to using your home equity as a down payment. at which that point you are correct, you'd have a Home equity loan with a new mortgage. That's why it is so important to buy a good deal and buy a property under market value, add value to it to force appreciation into it, so your aren't 100% leveraged and you have options
@@evan_phoenix Thank you for the prompt response, one more question. Is the home equity loan taken into account by the banks or brokers as a debt to income ratio when trying to get another loan for an investment property?
@@FT86TT so this can typically only be down with a commercial loan where they look at the deal itself (how much it makes vs expenses) rather than a traditional loan. So if the deal makes sense with that then the bank won’t have a problem lending. I did this and bought a duplex
Good video. I am stuck in a situation where I paid off my house and is worth $525k. I also have 3 rentals with 25% equity in each and cash flow. I want to sell and pay off my 3 rentals but don't think I can find a similar property for the same price. Everything is inflated currently. Will wait for 1 more year.
Thank you!! With the high inflation and interest rates, it probably is hard to find a home that is similar for the same price! Have you considered selling and purchasing a 2-4 unit house hack? Or a single family with and ADU? The great part is that you have a paid off primary home! Congrats
@Evan Phoenix Multifamily is not an option since I have a 5 year old and need to be in a good school district. The only option is to wait and cash out refinance once interest rates are low.
I’m stuck too, I bought my mix use property for 425k in 2019, took forbearance in 2020 for a year as the commercial space didn’t rent. I’m off forbearance as of Jan last year, and got a loan modification. I been paying my mortgage but hit a few bumps in the road. My house is worth 650-750k, can I take a heloc even after the forbearance and loan modification ?
That is totally fine! I personally have 6 tenants and I don’t have those problems. I also know a lot of people with way more tenants than me, also not have those problems! Personally, I believe all the horror stories about investing in real estate are spread from people that didn’t treat their properties right , didn’t manage correctly the tenants, and had a rental they didn’t even want. Regardless, everyone has their own beliefs and risk levels. There are a lot more ways to build wealth, I believe real estate is the best though🤟🙌
Ive never heard anyone talk about a draw period and deferred payments on a HELOC. Ive heard them say every year they review your account and can technically call the payment due in full. Help me out here. Are you talking about one type of HELOC and others talking about others?
So with a typical HELOC , you have a period where you can use the HELOC and pay interest only payments on the money you used. Typically anywhere from 5 to 10 years. Once that draw period is over, you can no longer draw from your HELOc and you have to start paying monthly for the principle and interest of what’s still owed (the repayment period). Which once again I’ve seen last anywhere between 5 and 10 years! Make sure to speak directly with your loan officer and understand the HELOC loan product they are offering. From experience I currently am in the draw period of my HELOC that lasts 10 years where I pay interest only payments on the money I’ve used until I pay it off or the 10 years runs up, whichever is first! Hope that helped!
Would you use a heloc for a conventional investment down payment or to bridge the gap on a hard money loan. The property I have a verbal agreement on has a pp of 260k rehab 15k ARV 335k
Yes I definitely would, but if all the other numbers penciled out. Since I don’t know any information about your deal specifically I can’t say yes or no! If you bought that deal, you could refinance 80% and take out 268k only leaving 7k in the deal if you wanted to keep it as a rental
@@evan_phoenix thank you for the reply! Yeah I’m going to do it! I just was nervous this will be my 2nd one and the numbers are way bigger so I was hesitant. PP of my 1st was 105k and it all went very well. My 2nd is a booming area where GM Is building an electric car battery plant scheduled to be operational in spring of 24. Going to write the purchase agreement Friday morning, can you do a video on FSBO purchase agreements? Had to search and search all RUclips seems like to write my first not much content on how to draft one.
@@scottscott45 congrats on your first one being successful! I totally understand how larger deals being intimidating, happens to me all the time! I will put that video on the list! Thanks for the suggestion!
Thanks for that! That could definitely be a good strategy to use. I would argue that a sales lease back would fall under just selling your property and negotiating a situation where you rent that property after the sale until you find your next property. Thanks for the comment!
This is the first video of Mr. Phoenix's that I have watched. First, allow me to preface that I own five rental properties and have so for 15 years. While home equity might be wealth "just sitting there doing nothing" it also is not debt. Taking out home equity incurs additional debt. Will the home equity pay for in-full the cost of the rental property? If not, then you now have two homes with debt. I was fortunate to buy my properties between 2008-2015 when most investors shied away from real estate . Thus, I paid much less than when the properties were worth. Rental properties are NOT passive income. There are expenses which eat into the monthly profit and tenants do not always pay their rent on time. (Especially during the pandemic when government offices suspended landlord rights and the ability to collect rents and terminate leases.). Right now (2023) is not a good time for investors due to home price increases over the past three years. It is very difficult to find deals today. I do agree that owning a du-,tri-, or quadplex is an excellent way to generate income through real estate but one also must consider the greater difficulty in selling those properties due to a more limited market. It is easier to sell single-family units. Hold and flips are good but might pose greater challenges for married-w/ children families due to the fix-sell-move strategy. In short, personally, I would not advise on using a HELOC to purchase rental income. At my age (57), I don't see the sense in incurring more debt
Love this response and thank you for sharing personal experience! Although I talk about how to access home equity, I agree that you have to do your due diligence and right now is very difficult to do it successfully due to inflation, interest rates, and rental expenses that occur! I think it still can be done today (Accessing home equity to buy rental properties) but must be done with heavy due diligence and must align with goals. Thank you once again for a great response that viewers should consider!
I have two rentals with mortgages still on them. There is zero chance I would use a HELOC to get a third for many of the reasons you stated and some he mentions in the video. I’m almost done paying one off and should have the other paid off in 3 years. I’ll save 6-8 months of rent to get my zero debt down payment so inside of one year from paying off the rentals I can get my third with little to no real risk. Real estate is amazing but people need to realize the risks involved. 40 years old here, looking to be fully retired by 47.
@@boomnailedit1609 congrats that’s awesome!!
What about using home equity investments that's not considered a loan like the HELOC ?
Deals exist, you may just have to look a bit harder. Now, in 2024 the market is starting to come down. If you’re willing to put some working to it- you can still find some great deals on rentals. The thing is, with market values being high, if you purchased your home prior to 2017, chances are you’ve enjoyed a major increase in your home equity. We’ve found that by accessing the equity in our home, we were able to buy a few rentals out right, fix them up, generate enough rent to pay the mortgage and some to put back into savings to buy another home in 12 months out right. We were also able to get a lower interest rate and closing costs than we would have with a bunch of conventional loans on each investment home. It also gives you more bargaining power and an edge on competition have cash to buy with. I don’t think I’d recommend a heloc but I would recommend Home equity loans in these circumstances.
I just thought of something…buy an RV/5th wheel to live full time, park at investment property while it is being renovated.
I have lived inside a house one time while i fix it up. It is not easy! Mentally you will always feel like, your living at work but by living in tour own domain at walking distance, it will be able to make live easier because you will be more focused and don’t have to spend time driving to and from property
RV Hacking, I love it lol! No but this is a great idea if you could potentially make the numbers work with the price of purchasing an RV. While the property is being renovated you don’t have to worry about living in the heart of the mess!
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Question, when you say use your home equity to purchase an investment property, do you mean to use your equity to pay the full asking price of an investment property or use your equity as a form of down payment? Wouldn't you have to pay two loans this way (refinance loan + new mortgage loan)?
You can do it either way, but I was referring to using your home equity as a down payment. at which that point you are correct, you'd have a Home equity loan with a new mortgage. That's why it is so important to buy a good deal and buy a property under market value, add value to it to force appreciation into it, so your aren't 100% leveraged and you have options
@@evan_phoenix Thank you for the prompt response, one more question. Is the home equity loan taken into account by the banks or brokers as a debt to income ratio when trying to get another loan for an investment property?
@@FT86TT so this can typically only be down with a commercial loan where they look at the deal itself (how much it makes vs expenses) rather than a traditional loan. So if the deal makes sense with that then the bank won’t have a problem lending. I did this and bought a duplex
@@evan_phoenix Thanks again, all this time I was thinking of using a traditional loan to buy an investment property!
Thanks for sharing & explaining this so well yeah 👍
Of course! Thanks for the support🤟
Good video. I am stuck in a situation where I paid off my house and is worth $525k. I also have 3 rentals with 25% equity in each and cash flow. I want to sell and pay off my 3 rentals but don't think I can find a similar property for the same price. Everything is inflated currently. Will wait for 1 more year.
Thank you!! With the high inflation and interest rates, it probably is hard to find a home that is similar for the same price! Have you considered selling and purchasing a 2-4 unit house hack? Or a single family with and ADU? The great part is that you have a paid off primary home! Congrats
Most investors not names Dave Ramsey would tell you there's no reason you should pay off your rentals. Especially if they're sub 4% APR.
@Evan Phoenix Multifamily is not an option since I have a 5 year old and need to be in a good school district. The only option is to wait and cash out refinance once interest rates are low.
I’m stuck too, I bought my mix use property for 425k in 2019, took forbearance in 2020 for a year as the commercial space didn’t rent. I’m off forbearance as of Jan last year, and got a loan modification. I been paying my mortgage but hit a few bumps in the road. My house is worth 650-750k, can I take a heloc even after the forbearance and loan modification ?
@@BestDYIvideos I honestly haven't experienced that, but i am sure if you reach out to your lender they can help answer that!
I did not know you pay for it before even possibly using it! Thanks for the info!!!
Yes the home equity loan is like a car loan!
i would not buy a rental nowadays and become a landlord, all these people not paying their rent and it takes forever to evict them!
That is totally fine! I personally have 6 tenants and I don’t have those problems. I also know a lot of people with way more tenants than me, also not have those problems! Personally, I believe all the horror stories about investing in real estate are spread from people that didn’t treat their properties right , didn’t manage correctly the tenants, and had a rental they didn’t even want. Regardless, everyone has their own beliefs and risk levels. There are a lot more ways to build wealth, I believe real estate is the best though🤟🙌
Loved this breakdown!!
Thank you so much, I am glad you did!
great video 📹 📹
Thank you so much!
Ive never heard anyone talk about a draw period and deferred payments on a HELOC.
Ive heard them say every year they review your account and can technically call the payment due in full.
Help me out here. Are you talking about one type of HELOC and others talking about others?
So with a typical HELOC , you have a period where you can use the HELOC and pay interest only payments on the money you used. Typically anywhere from 5 to 10 years. Once that draw period is over, you can no longer draw from your HELOc and you have to start paying monthly for the principle and interest of what’s still owed (the repayment period). Which once again I’ve seen last anywhere between 5 and 10 years!
Make sure to speak directly with your loan officer and understand the HELOC loan product they are offering. From experience I currently am in the draw period of my HELOC that lasts 10 years where I pay interest only payments on the money I’ve used until I pay it off or the 10 years runs up, whichever is first!
Hope that helped!
Would you use a heloc for a conventional investment down payment or to bridge the gap on a hard money loan. The property I have a verbal agreement on has a pp of 260k rehab 15k ARV 335k
Yes I definitely would, but if all the other numbers penciled out. Since I don’t know any information about your deal specifically I can’t say yes or no!
If you bought that deal, you could refinance 80% and take out 268k only leaving 7k in the deal if you wanted to keep it as a rental
@@evan_phoenix thank you for the reply! Yeah I’m going to do it! I just was nervous this will be my 2nd one and the numbers are way bigger so I was hesitant. PP of my 1st was 105k and it all went very well. My 2nd is a booming area where GM Is building an electric car battery plant scheduled to be operational in spring of 24. Going to write the purchase agreement Friday morning, can you do a video on FSBO purchase agreements? Had to search and search all RUclips seems like to write my first not much content on how to draft one.
@@scottscott45 congrats on your first one being successful! I totally understand how larger deals being intimidating, happens to me all the time! I will put that video on the list! Thanks for the suggestion!
You forgot a sales lease back.
Thanks for that! That could definitely be a good strategy to use. I would argue that a sales lease back would fall under just selling your property and negotiating a situation where you rent that property after the sale until you find your next property. Thanks for the comment!