Hello and welcome to another episode of Ask Marco where I answer your investing related questions.

Before I get to today's question from Jason, I just want to remind everybody to smash that subscribe button. Remember to subscribe to the show so you never miss an episode. And that way I can continue to put these out and you won't miss a great question from listeners like yourself. So I hope everybody is doing well and not going stir crazy with the crazy times that we are living in right now. So I will continue to do these episodes. And today's question comes from Jason. He says, dear Marco, we are looking to take out a HELOC, a Home Equity Line of Crediton our primary residence for the purpose of buying our next home. And I assume he meant property here. Since I am a licensed residential contractor, I would like to find a new construction opportunity or a fixer upper fixer property.

To renovate with the plan to refinance both of those properties into a conventional 30 year fixed rate loan at the end of the project. Currently we have around $80,000 available through a Home Equity Line of Credit and that's assuming you have an 80% loan to value, which is typical and some cash. My question for you is two parts. First, would we be able to get better loan terms as a construction loan and he says here slash line of credit, which are really two different things through my business or would it be more favorable to finance this as a personal loan? I know a big part of the answer depends on the deal Credit, but any input you have is appreciated. Secondly, there are a lot of HELOC Home Equity Line of Credit products out there. What terms should we be looking for in a favorable agreement and are there terms we should try avoid? Thanks for taking my question, Jason.





Well, Jason, thanks for the question. Here's my quick thoughts on this. You mentioned a couple different things, so you have a couple of different scenarios going on here. First of all, if you're looking at a new construction, literally new construction, meaning you're building from the ground up project, then what I suggest you do is shop around if you can find it today, I know a lot of lenders have tightened up, but these loans are still out there. See if you can get yourself a construction loan, either a construction loan, which is just one type of loan or what's known as a CP loan, a construction to perm short for permanent loan, which means that you have one close but two loans. So it becomes permanent loan, a 30 year fixed rate mortgage at the end of the construction and that starts off as a construction loan.

That's the better way to go if you can find it because it's really one close and you go right from construction to perm. So if you can find that, fantastic, uh, that's probably the best way to go if you're doing new construction because you're not going to be able to get other types of loans, like a hard money loan because there's no existing property. So you really don't have much of a choice there. It has to be some sort of construction loan unless you have the cash on hand, which leads to the second option. If you're doing a fixer upper, if you're buying a property that you intend to keep as a rental or a home and you want to finance that, then you're going to need cash or you're going to need cash and some credit, which can come from your home equity line of credit.

Sounds like you can do around $80,000 and you've got some cash on the side. That's great. Assuming that's enough, I don't know where you are looking at these properties, but if $80,000 plus your cash is enough to buy, fix, and then refinance that property to pull your cash out and or repay your line of credit, then do it that way. That's similar to what we call a Burr strategy. B, R, R, R, R, which is short for buy, renovate, refinance, rent and repeat. So that's one way to go with a quote unquote fixer upper property. The other option which you may want to consider has harde...