HELOC On Investment Property to Grow Your Real Estate Business

Investors must always be looking for ways to fund their real estate business. A fantastic way to get financing to buy more rental properties is to use the HELOC on Investment Properties. This is done by using the equity you have in your own home or another property that you own.

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If you own a property, you most likely have a funding resource just waiting to be used.

The trick though is to get the money out of your property without selling your property.

Once you sell your property, you no longer have the property making cash flow for you.

The HELOC On Investment Property Tenants Pay Your Increase Mortgage Payment

Let’s say you pull the cash out of your home with a cash out refinance loan and the monthly payment on your home goes up by $400.

This would be a concern if you were just spending the cash on things that do not earn you money.

But you are an investor so you buy assets that will make you money.

With the money you take out of the property, you use it to buy an appreciating asset that will make you money every month.

Using the cash out refinance to buy a rental property will allow you to rent a property to a tenant who will be paying the increase in mortgage payment of $400.

The numbers would look like this:

New HELOC Property Expenses:
Increase in mortgage payment for your home: $400
Taxes and Insurance: $100
Property Manager Fees: $90
Vacancy Factor: $40
Repair Savings: $40
Miscellaneous: $40
Total Expenses: $710

Income from New Property: $950
– Total Expenses: $710
Income: $240

That would be a $240 positive income that is truly passive. The money goes in your pocket every month without you doing any more work.

The property is also taken care of by the property manager so you don’t have to manage the property and deal with those headaches.

The HELOC on investment property will give you funds to buy your next property and have the tenants pay for the increase.

 

Find and Increase the Value of Your Home for Future HELOC on Investment Property

I look to maximize my investment to make the most money or bring the most value.

When looking at renovations for your home, try to think of the renovations that will bring you the largest increase in value for your home.

The value of your home is measured just like any other item you might sell. It all depends on what other people would pay you for it.

If you make the item more appealing to your buyers, the value will grow. Same with an appraisal of your home.

Surprisingly, even though you are spending money on renovations, you can actually be making money while you are fixing up your home!

When you appraise your home for refinance, as an example, an appraiser will go through your home and compare it to other properties that have sold in the area.

If your property is better, nicer, and renovated well, making the home up-to-date, the appraiser will put the value of your home higher than others that are not renovated.

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Making Money Through Forced Appreciation

There is a term that I teach all my real estate investing students. It is “Forced Appreciation”.

Forced appreciation of a property is just one of the tools in an investor’s money-making tool belt.

This is done by rehabbing or renovating the property so that the increased value is more than the cost to do the renovations.

There are unlimited ways you can renovate your home, but there are some renovations that will bring in the largest return for your money.

When investors think of a financial return, it would be the difference between the amount of money you put into the renovation and how much of an increase you receive in value of your home.

Here are some simple numbers for you on HELOC investment property:

Current Home Value: $250,000
Kitchen Renovation Cost: $20,000
Increase in Home Value: $50,000

New Home Value After Renovations: $300,000
Total Forced Appreciation: $30,000

As you can see, the value your put into your home will be positively reflected in the new “After Repair Value”.

That forced appreciation of $30,000 is almost like money in your pocket.

This increase in equity in the property can be pulled out with a future sale of the home or refinance as a cash out refinance.

Renovations That Bring in The Most Return for Your Money

We renovating your home, keep in mind which ones that would bring you the most increase in equity and be the largest return for your money.

Think of things that buyers like and focus on appealing to their interests.

For example, buyers like more bedrooms and bathrooms. If the buyers want more bedrooms, it would not be a good idea to remove bedrooms to make another room larger.

It would be a great idea to add another bedroom to increase the total number of bedrooms which increases the value of the home.

Here is a small list of the best renovations to increase your home equity, dollar for dollar, the most.

Kitchen Remodel using HELOC on investment property

The kitchen is where everyone spends the most time, especially those who do cooking.

It is a place that most buyers walk through first and will usually know if they like the house or not if they like the kitchen or not.

It can be costly to renovate the kitchen and completely renovate that space. If you did completely gut the kitchen and put new, up-to-date, appliances, fixtures, and cabinets, the value of your home will increase dramatically.

It could even appreciation 100% more than what it cost to do the renovations.

So, if it cost $25,000 to do a kitchen renovation, if done right, the increase in value can be $50,000 or more than before the renovation was done.

Bathroom Remodel With HELOC on Investment Property

Bathrooms are a nice space the people love to have look good. If you think about it, most living rooms and bedrooms are just blank rooms with furniture in them.

A bathroom has many more things. Cabinets, countertops, sinks, fixtures, tile, mirrors, etc. that make the space look appealing to the buyer.

A full gut of the bathroom may not be necessary. If you add a new granite countertop, new plumbing fixtures, new lighting fixtures, and replace the flooring, etc., the bathroom will look updated and inviting for a potential buyer.

Think about this: A nice looking bathroom may not make the buyer buy, but a bad looking bathroom will make a buyer not buy. After all, who wants to shower in a disgusting shower anyways…

In one property I owned, I the value increase by $65,000 after I remodeled the kitchen, bathrooms, painted, and replaced the flooring.

In all, I spent $20,000 for the entire remodel and sold the property for a great profit. If you want to sell a house fast, make the kitchen and the bathrooms look great for the new buyer.

Curb Appeal

The first thing a potential buyer, or a visitor sees is the front yard. This is the first impression that you give to the world of what the inside of the property is like.

Imagine driving in your car to see a home you are considering to buy and live in for many years.

As you see the other address of the homes on the street looking for the right address of the home for sale, you notice the homes all look nice.

As the address numbers get closer to your future home property, you see a home with 10 large over-grown trees, bushes that have not been trimmed, grass that hasn’t been cut in 12 weeks, and news papers piled up in the driveway.

You hope that it is not the property you are considering. To your dismay, the address matches the one on your list.

Not a pretty picture at all, is it?

The anticipation and excitement of seeing a potential home makes most people excited and their expectations are high.

With high expectations comes a low crash of excitement as the property makes you want to keep driving by and even bother seeing the inside.

Making the inside of your home is crucial to increasing the value. But, if the buyer never sets foot inside because they are scared off by the lack of curb appeal, then they will never see the inside.

Make the home the center piece. People live in homes, but walk past front yards.

Your goal is to make the front yard draw the buyers’ eyes toward the house past the yard instead of away because of the yard.

Focus on removing and trimming things that are overgrown and ugly. If you can imagine what a newly manicured front yard would like, then go for that.

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Painting

Dirty walls in a home make people feel uneasy, dirty, or icky.

A fresh coat of neutral color paint will go a long way to making a home buyer or renter feel more at home in your place. When painting, there are a few Pro Tips to remember.

1. Get multiple quotes for the labor to reduce the price
2. Make sure to use Killz primer to cover up stains and smells
3. Paint the walls, baseboards and trim throughout the entire house
4. Pick a color that will not turn anyone off. Pink, purple, blue, etc. are all colors that may look good to you, but the majority of the home buyers will not like it. Keep it neutral.
5. Paint the ceiling as well as the walls
6. Go the extra step and paint the doors throughout the house

In doing these things, you will make buyers and renters feel warm and cozy in their potentially new space.

Flooring

Always replace old carpet. Always…

Most buyers or renters will, at some point, be walking barefoot on the carpet in the house. They may even lay down or play with their little kids on the carpet.

They would even let their little 1-year old babies crawl all over the carpet.

Having an old dirty and disgusting carpet in the house would be a huge deterrent to a potential buyer or tenant.

When it is time to replace the carpet, there are a few things to consider.

1. Should you switch to tile, laminate, hardwood, or keep it carpet?
2. Keep in mind who will live in the property. For tenants, make sure you get one step above the contractor’s grade carpet which is the base feel and is mostly uncomfortable.
3. The padding below the carpet

The flooring in the kitchen could also be updated. If it is old 70’s linoleum, then definitely change it out for something like tile or vinyl hardwood planks. Currently, these are great options for making the kitchen flooring look clean and up-to-date.

Some More Small Things You Can Do

• Replace the faucets and cabinet hardware to update the kitchen and bathrooms.
• Paint the cabinets a color that go well with the counter tops.
• Clean or replace the carpet in the house.
• Replace the casing around the doors and the baseboards with nice trim painted white.
• Put a fresh coat of neutral color paint on the walls (not white) to make the home appeal to as many buyers as possible.
• Replace the doorknobs and the hinges to bring those up to date as well.
• Replace all light switches with rocker switches and all electric outlets with new ones along with the new face plates.
• Lastly, updating the lighting fixtures will go a very long way to making the home appeal to every potential buyer.
• If you do these, your property will look great and increase the value of your home incredibly.

Renovations You Should NOT Do

When trying to increase the value of your home, the items above are great renovations you can do to dramatically increase the home value.

There are some renovations that will actually lower the value of your home.

Remember that you want to cater to 90% of the population by renovating your home to fit a broad range of customer types.

Neutral colors, more room, and up-to-date décor.

NEVER Remove a Bedroom

Renovations should NEVER include removing a bedroom. There are two major reasons why you should never remove a bedroom.

1. Comparable Home Sales
   2. Buyers/Renters Want More Rooms

Some people may think, “I can make this one room bigger by removing a room.” This is a bad idea.

With the value of your home being based on the sale of other like properties of the same characteristics, i.e. 3 bedroom and 2 bathroom, your value will go up or down with the other properties in the market.

Homes with more bedrooms sell for more and are command more rent than ones with less. A 5 bedroom is better than a 4 bedroom.

A 4 is better than a 3, and a 3 bedroom is MUCH better than a 2 bedroom. Removing a room for ANY reason is a horrible idea.

Buyers and renters love having more bedrooms to fit their family in. The most popular home size is 3 bedrooms and 2 bathrooms.

Anything smaller than 3 bedrooms limits your buyer/renters who would buy/rent your property.

NEVER Add Wallpaper

Many people may disagree with me on this point but I NEVER put wall paper in a home. There are many reasons why you should never use wallpaper.

1. It is hard to remove
2. There are so many styles, colors, textures, etc. for any to be neutral or desired by a buyer/renter.
3. It is hard to remove
4. It costs a lot to have someone remove it
5. Most people don’t like wallpaper in a home.
6. It’s hard to remove
7. Times change and so do desires for the style of wallpaper
8. IT SUCKS TO REMOVE!

Many times, I have removed wallpaper from a home because renters walk in, and then walk out of a home. When they see the wallpaper, most HATE it and don’t want to try to remove it themselves.

Also, it is not advisable to paint over the wallpaper.

It can have an even worse effect on the look of the wall than if you leave it.

It will also peal and delaminate from the wall making the wall look bubbly and undesirable.

When renovating, go with paint over wallpaper. You will save yourself lots of headaches in the future.

NEVER Paint in Bright or Crazy Colors

Neutral paint colors will appeal to more people than if you paint your home some crazy color. You always want to appeal to the broadest market.

Painting the house, a bright purple will kill most people’s desire to live in the place.

When a tenant asks to paint the walls, I make sure my Property Manager agrees to the color.

Never do I give them a blank canvas to go crazy paint whatever crazy colors they want.

More than likely, they will be in there for 1 year and then you need to spend lots of money painting over something you would not normally need painting over.

NEVER Remove a Shower or Bath tub     

Similar to removing a bedroom, removing a bathroom, shower, or bathtub will be detrimental to the value of your home.

A bathroom has a toilet, shower or tub, and a sink. Anything less than that is considered NOT a full bathroom.

If a bathroom has only a sink and a toilet, it is a half bathroom.

For most buyers/tenants, they want a full bath WITH a shower and a tub. Not everyone takes showers and not everyone takes baths.

I had to add in a shower because the one full bath only had a tub. The tenants were not moving in because it was missing the shower.

After adding the shower, I was able to rent the property to some good tenants.

Remember the key is a 3-bedroom, 2-bathroom home which almost anyone can live in.

NEVER Concrete the Entire Back Yard…

A quick note is to NEVER cover the back yard with concrete!

My very first property I ever bought had the entire yard filled with concrete. The previous owners did not want any yard work so the filled it all in.

It was a lot of rough work saw cutting, jack hammering, and hauling all the useless concrete to the curb, then paying a company to haul it away.

If I find any pictures of the job, I’ll post them. It was in 2006 before digital pictures where invented…

Doing these things will make the value of your home increase almost double over how much you spend doing the work.

As you consider what renovations to do in your property, make sure you keep in mind what other people would like in the future.

If you ever sell or rent out your home, you want the property to be appealing to as many people as possible.

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