What you need to know about HELOC Loans and how it can be the catalyst for any new real estate enthusiast who’s low on funds? First of all, what is a HELOC Loan? HELOC is short for Home Equity Line of Credit, which allows you to borrow money against the available appreciation or equity of your home or anyone else home to use however you please without restriction or collateral because the home is the collateral. It’s cash that’s available at a moment’s notice if it’s approved by the bank or credit union ahead of time, similar to getting a conventional loan in that regard. You have to pay a relatively small amount in the way of a fee for access to that money on an annual basis, around $150 a year in my experience, but check with your bank to confirm. What’s important to note is that a HELOC doesn’t charge you for the money that you borrowed immediately; you are only charged for the money or capital that you use when you use it. When you return the capital, your interest-only payments stop, and the balance in the HELOC is ready to put into your next deal. You just pay the daily interest rate on the average daily balance when the money was out of the account. As a real estate investor, how would I use a HELOC loan? Well, if I or someone I know had a home that appreciated and I needed money to fund a fix and flip, I can leverage or borrow against the equity in the form of a HELOC loan and use it as a down payment and finance the rest of the deal. If you don’t own a home but know someone who does, you can ask them for a HELOC loan. You would pay the fees on that loan plus offer maybe 4 to 6%, which is an excellent deal for the party who acquired the HELOC on your behalf, and they are then called your private lender. It’s free money to them from their home’s equity that the private lender otherwise wouldn’t be able to access unless they sold their house. Your private lender can feel secure knowing their investment is backed by real estate. I’ll share my experience; I bought a house in San Jose, California to fix and flip and put down $150,000 from my HELOC to guarantee the hard money lender that I am excellent and safe to fund for this deal. A hard money lender is an entirely different subject for another video. I was able to secure the home purchase with the HELOC loan, and the balance to purchase and do the improvements were covered by the hard money lender. After fixing up the home, I placed it with an agent on the MLS, and it was sold. The money then can be returned to the HELOC to sit in wait idly for use on the next deal, and the next, and so on. In the case of my HELOC, it was accessible for ten years. If there were a balance, it would convert to a loan where interest and principal would have to be paid back over another five years if a balance had remained similar to a conventional loan. How is a HELOC different from a traditional bank loan? A traditional bank loan starts charging you the interest and principal almost immediately and for the loan duration based on the terms, usually between 5 and 30 years. I recommend always going with a fixed rate. PLEASE, do not use the HELOC for a Vegas trip to buy a car or boat. That would be unwise. You could use it to pay off credit cards if you are trying to get rid of a high-interest rate card and would be able to pay it off quickly and then pay the HELOC off in a few months. If it makes financial sense, you can even use the HELOC to make a down payment on passive income property, making you additional income every month. If you are looking for a loan, reach out, and I’m happy to share my resources. Have any questions or would like to learn more? Feel free to comment below or send me a message from the healthwealthandrealestate.com website on the “Get in Touch” link at the top of the page, and please like and subscribe to the channel so that you aren’t missing future educational videos. Thank you for watching I hope you learned something from this session.
What is a HELOC Loan and how it can help the broke investor?