# HELOC against my Property to Invest



## Fain (Oct 11, 2009)

Hi, 

I just bought a rental property in Hamilton. I take possession of it sept 4th. Got a question on the process for HELOCs. Basically from my understanding in order to get the HELOC loan the bank or other lender sends out an appraiser to check the property to assess a value for a loan. . . Obsviously i want to access as much equity as possible, first question is are the appraised values generally in line with the market prices in the area? 2nd question is how quick can i access the money(how long the process takes).

Will be using 100% of the HELOC loan to invest in the stock market.


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## heyjude (May 16, 2009)

I will ignore the issue of how wise it is to invest 100% of your equity in the stock market. 

In 2009, when the local market was dropping, I purchased a property in BC for 75% of the initial asking price. I obtained a HELOC from TD. They appraised the property at 10% more than I paid for it. The TD banker told me that their appraisals were quite conservative. Subsequently, the market continued to fall. Nowadays, the market value of the property is probably about 80% of what I paid for it, and considerably less than the 2009 appraisal. If I had waited another year, I could have gotten an amazing bargain. So in my case, the appraisal was based on out of date market data that were too optimistic. I have to wonder whether everyone in the industry wanted to support real estate sales. Probably some bias involved.

In any case I took a HELOC for two thirds of the purchase price, moved into the property after selling my previous home, and paid off the balance of the loan. However, I have kept the HELOC open as an emergency fund.


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## Fain (Oct 11, 2009)

heyjude said:


> I will ignore the issue of how wise it is to invest 100% of your equity in the stock market.
> 
> In 2009, when the local market was dropping, I purchased a property in BC for 75% of the initial asking price. I obtained a HELOC from TD. They appraised the property at 10% more than I paid for it. The TD banker told me that their appraisals were quite conservative. Subsequently, the market continued to fall. Nowadays, the market value of the property is probably about 80% of what I paid for it, and considerably less than the 2009 appraisal. If I had waited another year, I could have gotten an amazing bargain. So in my case, the appraisal was based on out of date market data that were too optimistic. I have to wonder whether everyone in the industry wanted to support real estate sales. Probably some bias involved.
> 
> In any case I took a HELOC for two thirds of the purchase price, moved into the property after selling my previous home, and paid off the balance of the loan. However, I have kept the HELOC open as an emergency fund.


Thanks for the info. It must have been a really localized market. Hasn't B.C. Real Estate been on a tear since 2009?


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## heyjude (May 16, 2009)

Fain said:


> Thanks for the info. It must have been a really localized market. Hasn't B.C. Real Estate been on a tear since 2009?


Vancouver real estate, yes, but not all of BC.


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## Just a Guy (Mar 27, 2012)

My experience is it depends on who they send out. Some appraisers are very conservative, others are quite fair...I've rarely found ones to go beyond the price the bank submits to them.

Once the appraisal gets done, it's usually only a few days before the funds become available.

Is the heloc on your house or your rental? I know banks generally don't like helocs on rentals.


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## Fain (Oct 11, 2009)

Just a Guy said:


> My experience is it depends on who they send out. Some appraisers are very conservative, others are quite fair...I've rarely found ones to go beyond the price the bank submits to them.
> 
> Once the appraisal gets done, it's usually only a few days before the funds become available.
> 
> Is the heloc on your house or your rental? I know banks generally don't like helocs on rentals.


The property will initially be listed as my principal residence for a couple months and then changed to Rental after some renovations are complete. When i apply for the HELOC, it will be listed as my principal residence.


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## Just a Guy (Mar 27, 2012)

So, you are bordering on fraud...

Not to judge, just warning you how the bank can see it if you don't inform them of the change...


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## heyjude (May 16, 2009)

Just a Guy said:


> My experience is it depends on who they send out. Some appraisers are very conservative, others are quite fair...I've rarely found ones to go beyond the price the bank submits to them.
> 
> Once the appraisal gets done, it's usually only a few days before the funds become available.
> 
> Is the heloc on your house or your rental? I know banks generally don't like helocs on rentals.


My property was purchased as a rental and I had no problem getting a HELOC. After ~18 months, it became my principal residence. The bank had no problem with any of it. YMMV.


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## Just a Guy (Mar 27, 2012)

They tend to change the LTV between house and rental, with rentals being less...going the other way tends to be fine.


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## Mortgage u/w (Feb 6, 2014)

Since you are setting up your HELOC with your purchase, the appraisal has not much to do with your HELOC. Safe to say the value they will use to determine your HELOC percentage will be the purchase price. Depending the lender, it will hover between 65% and 80% of your purchase price.

As for the rental vs primary residence issue - if you already own a property, no choice to either consider your new purchase a rental or at most, a secondary home. If you don't own a property, then it will be fine as a primary residence. True, lenders do not like the fact of financing a primary residence which later turns rental....but it is not a reason for them to refuse your loan. A mortgage is underwritten as an 'as is' situation at the time of your application. The only time it can turn against you is if you end up in court with your lender for some reason - the fact you knowingly financed a rental as a primary residence can play against you.


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## Just a Guy (Mar 27, 2012)

As I said, bordering on...

I don't suppose you want to disclose your numbers for this rental property...to see if it's actually a good investment.


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## gt_23 (Jan 18, 2014)

Fain said:


> Hi,
> 
> I just bought a rental property in Hamilton. I take possession of it sept 4th. Got a question on the process for HELOCs. Basically from my understanding in order to get the HELOC loan the bank or other lender sends out an appraiser to check the property to assess a value for a loan. . . Obsviously i want to access as much equity as possible, first question is are the appraised values generally in line with the market prices in the area? 2nd question is how quick can i access the money(how long the process takes).
> 
> Will be using 100% of the HELOC loan to invest in the stock market.


Maybe I'm missing something, but if you haven't closed on this property yet why don't you just put down the minimum down payment and use the rest of your cash to invest in the stock market. It seems kind of pointless to me why you would use all your cash to fund the purchase and then borrow back your equity via HELOC at a higher rate than your mortgage.


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> So, you are bordering on fraud...
> 
> Not to judge, just warning you how the bank can see it if you don't inform them of the change...


Some people just don't like paying the extortive taxes in this country, especially when they see what little value they get for them.

I think we ought to make high school civics a full year-long course so we can teach people to be good citizens and pay their fair (LOL) share.


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## Just a Guy (Mar 27, 2012)

gt_23 said:


> Maybe I'm missing something, but if you haven't closed on this property yet why don't you just put down the minimum down payment and use the rest of your cash to invest in the stock market. It seems kind of pointless to me why you would use all your cash to fund the purchase and then borrow back your equity via HELOC at a higher rate than your mortgage.


Interest on a heloc, when used for investing, is tax deductible, interest on a principle residence isn't.


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## Fain (Oct 11, 2009)

Just a Guy said:


> As I said, bordering on...
> 
> I don't suppose you want to disclose your numbers for this rental property...to see if it's actually a good investment.


Sure, here are my numbers below. 

85k downpayment. 185,000 Semi Attached 3 bedroom house in Hamilton. 20k of my money is set aside for repairs/renovations. 35 year mortgage at 2.89% fixed rate for 5 years. Mortgage is about $400 Per month, property taxes being $185, tenant insurance $90.


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## Fain (Oct 11, 2009)

Mortgage u/w said:


> As for the rental vs primary residence issue - if you already own a property, no choice to either consider your new purchase a rental or at most, a secondary home. If you don't own a property, then it will be fine as a primary residence. True, lenders do not like the fact of financing a primary residence which later turns rental....but it is not a reason for them to refuse your loan. A mortgage is underwritten as an 'as is' situation at the time of your application. The only time it can turn against you is if you end up in court with your lender for some reason - the fact you knowingly financed a rental as a primary residence can play against you.


It will be my first home  . . . That is good to know, i will be living in there as my primary residence for 2 months when i'm doing renovations and so it will be listed as a primary residence when I apply for the the HELOC. 

Thanks for the info


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## Just a Guy (Mar 27, 2012)

Well, with those numbers (and your large down payment), you should have a good cash flowing investment. In these days of low interest however, I'd recommend you increase your payments to build up equity and protect yourself from a correction. 

Your current setup, and eventual heloc will mean you're really not paying anything down...not a good idea in my opinion. Besides, even if you pay it down, you can always refinance if you need to in the future.


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## Mortgage u/w (Feb 6, 2014)

Fain said:


> Sure, here are my numbers below.
> 
> 85k downpayment. 185,000 Semi Attached 3 bedroom house in Hamilton. 20k of my money is set aside for repairs/renovations. 35 year mortgage at 2.89% fixed rate for 5 years. Mortgage is about $400 Per month, property taxes being $185, tenant insurance $90.


So if I understand correctly, you will set up a HELOC for $148,000 where $100,000 will be your fixed mortgage with payments as described and $48,000 will be your LOC for investment purposes. Have you factored in the payments for the LOC?


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## Causalien (Apr 4, 2009)

Fain,

I do not think investing all of the HELOC in the market is a good idea. I recommend only 20%. Especially now when we are in a bubble. Sure, there's a chance of the market rising for another 400% after this year like it did in the 90's, but that's 1 in 10 chance of happening. Also, we are nearing the end of a 8 year cycle. 

That said, even if you get the timing right like I did in the 2009, individual stocks are still harder to time. The first batch of my 20% HELOC that I borrowed, I used it to buy BAC stock at $22. It went up to $39 but then proceeded to crash to $3.8. If I didn't hold back all my gunpowder on the first buy order I would still be in the red today. Even though my timing was quite right. 

But even if your timing was right, you still have the fear to deal with. I remember the 3rd buy order when the stock is at $3.8. If I didn't have a screw loose, I would've froze with fear and did nothing. 

Nowadays, BAC is being dragged down by Legacy country wide legal issues. A tiny $3 billion dollar company it purchased that has nothing to do with its fall to $3.8 (Merill Lynch)

So in sum, putting all the HELOC in any one stock is not recommended because you can never forsee how messed up the US and CDN legal system is when SHTF (And believe me, Canada's housing market screams of S hitting TF). If you must do so, do it on an index ETF as you get a higher chance of not losing your shirt.


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## Fain (Oct 11, 2009)

Mortgage u/w said:


> So if I understand correctly, you will set up a HELOC for $148,000 where $100,000 will be your fixed mortgage with payments as described and $48,000 will be your LOC for investment purposes. Have you factored in the payments for the LOC?


Yeah payments to the LOC are factored in.


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## Fain (Oct 11, 2009)

Causalien said:


> Fain,
> 
> I do not think investing all of the HELOC in the market is a good idea. I recommend only 20%. Especially now when we are in a bubble. Sure, there's a chance of the market rising for another 400% after this year like it did in the 90's, but that's 1 in 10 chance of happening. Also, we are nearing the end of a 8 year cycle.
> 
> ...


It will be a few stocks actually. . . IBKR, COS.TO, selling CHL Puts, and some CCJ is what i have on my radar right now. Timing may be a problem but we'll see how it turns out. I believe these companies will do good and gotta put my money where my mouth is.


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## Addy (Mar 12, 2010)

Fain said:


> Hi,
> 
> I just bought a rental property in Hamilton. I take possession of it sept 4th. Got a question on the process for HELOCs. Basically from my understanding in order to get the HELOC loan the bank or other lender sends out an appraiser to check the property to assess a value for a loan. . . Obsviously i want to access as much equity as possible, first question is are the appraised values generally in line with the market prices in the area? 2nd question is how quick can i access the money(how long the process takes).
> 
> Will be using 100% of the HELOC loan to invest in the stock market.


The appraised value will always come back to the value you paid for the property except in very rare circumstances.


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## Cal (Jun 17, 2009)

How much do you expect to be cash flow positive monthly? I didn't see what your expected monthly rental rate will be?


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## Fain (Oct 11, 2009)

Cal said:


> How much do you expect to be cash flow positive monthly? I didn't see what your expected monthly rental rate will be?


1200 rental. Few hundred each month in cash flow.


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## Rusty O'Toole (Feb 1, 2012)

Last time I got a HELOC they didn't even look at the place. They have a database that gives them an estimate of value, if it is in line with other houses in the neighborhood, and it looks ok on Google Maps you're in.

Their representative came around to sign the papers but did not inspect the property. He was an amateur, picking up a few extra bucks in retirement. If you ask me the whole thing was pretty loose but I'm not complaining.

This was 3 or 4 years ago, with Manulife.


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