I love investing in real estate, which is one reason my career feels so fitting! Anyway, I wanted to setup a home-equity line of credit(HELOC) to maximize my preparedness for a new, future rental property.
Here is the 5-star review I left for Logix Federal Credit Union on Yelp, who came through with flying colors on this loan:
I am incredibly and sincerely impressed with Logix. They WANT to make deals happen. I talked to 6 banks (4 were other credit unions) to get a home-equity line of credit (HELOC). The underwriting (UW) staff at every other bank seemed completely incompetent. Being self-employed with corporate tax returns, the other banks shut down with minor complexity and threw up their hands when their “desk-appraisal” determined the value of my personal residence was too low.
Service at these other banks slowed and I was put on the back burner. Not at Logix. At Logix, everything that was “too complex” for the other banks was EASY here. It was just a matter of UW putting a bit of thought into how things were setup. Logix was the only one to do so.
When desk-appraisal issues popped up at Logix, they were the only bank to actually give me an option to have a full appraisal conducted. If the appraisal came in higher than the desk appraisal and I established a line of credit, the $400 fee would be reimbursed. As a real estate broker, I knew this was not going to be a problem (knowing values). I paid the appraisal, the valuation came in $110,000 more than the desk appraisal, and my HELOC closed within 34 days of submitting my initial paperwork (which is fast considering we had to wait a good week for the full appraisal to be done).
My $400 was also credited to my new Logix account! Which, by the way, I love having since finding out that they have NO foreign transaction fees on their debit cards! I’m so used to budgeting 3% in fees when I travel. This is great!
Anyway, I was about to give up on getting a credit line, but Logix prevailed. Irma is an excellent loan officer to work with and her processing / UW team is amazing as well!
Oh, and on the interest rate: 1% over the WSJ prime was a killer deal! 4.25% interest-only on a second-position note is like free money!
You may wonder: Why would I take on a credit line? Most of my clients know that I enjoy the requirement of putting 25% down on a rental property because I feel it gives me a comfortable margin of safety. The legendary value investor Benjamin Graham and his pupil, Warren Buffett, are huge on maintaining a margin of safety.
A credit line enables me to act fast. If there’s a great deal that none of my clients want (I always send my clients great deals first), I want to be ready to buy it. Then, once I close escrow, my mission becomes paying off that credit line as soon as humanly possible. That way I’m back to the 25% margin of safety. That’s the thing about credit lines: You can just have it open without using it or paying interest on it.
The goal, of course, is to purchase a rental property that needs work and at a great price. For example, if I purchase a $420,000 house and put $30,000 into it for fix up, I’m hoping that house is worth $500,000 (which it very well can be with a well-found purchase). That not only increases my margin of safety, but sets me up to do a cash-out-refinance in the future (always maintaining at least 25% equity) to purchase another rental property.
Anyway, real estate is all about leverage. Having access to a credit line is an incredible tool, but — as with any leverage — it does come with risk.
Post written by Realtor Kevin Paffrath at “Meet Kevin“, the amazing real estate agent and brokerage serving Ventura County and writing for home buyers, sellers, investors, and anyone with an interest in real estate.