Would anyone be willing to share how they used a HELOc on their personal property to purchase a rental property? Some of the details not to personal, just trying to get an idea if this is something I should do. Only looking to take out a small amount, thank BP!
@Malik Jackson - I suggest only using HELOC's for short term investments - i.e. BRRRRs. Utilize the funds for a downpayment, rehab, etc knowing you can refinance when you're done and pay off the HELOC. This way you're minimizing your interest payments compared to a cash out refi. Otherwise, if they funds will stay invested in the property, use cash out from a refinance as you can fix the interest rate, where typically a HELOC is variable.
HELOC or Cash out refinance either way would work. If your rate on the first mortgage is extremely low and cannot be matched or lowered than HELOC. But if you can lower your first mortgage rate and take some cash out then do a cash out refinance. Cash in hand and also in the bank for PITI reserves is stronger then an "Open End" mortgage/HELOC. Which is just another debt/liability and adds to your current DTI.
@Jason Wray Thank you I was looking for a way to get started. I have a very low interest rate that why I was looking at the Heloc. Raising my DTI will be the tough part, again thank you trying to weigh what would be better.
@Malik Jackson - I suggest only using HELOC's for short term investments - i.e. BRRRRs. Utilize the funds for a downpayment, rehab, etc knowing you can refinance when you're done and pay off the HELOC. This way you're minimizing your interest payments compared to a cash out refi. Otherwise, if they funds will stay invested in the property, use cash out from a refinance as you can fix the interest rate, where typically a HELOC is variable.
@Ryan Howell thank you, great point. I was looking at a long term hold. It makes sense to pay the money back to pay the HELOC back as soon as possible, thank you appreciate it!
@Malik Jackson Generally speaking, if you aren't paying it off immediately (and especially in a rising rate environment) it makes sense to go the cash-out fixed rate route. If you are paying it off short-term, less than 24 months in my opinion, then HELOC would be my recommendation.
Also, if you go HELOC route, make sure you ask whatever lender/bank you are going with if they ever reduce or even pull the line at their own discretion, which is something they can do with a HELOC.
@Malik Jackson like the other posters said you can use it for short term financing or making all cash offers. You want to get permanent financing in place so you don't have the HELOC out too long. I also recommend having what you use is cash to protect yourself in case you do need to pay it off (Plan B).