Hello I would like your opinion regarding using a HELOC for downpayment for my next investment property. I would purchase a multifamily and house hack and this should help limit the risk. Most videos I have seen state HELOC for downpayment is too risky due to it being a short term tool, but I am in need of cash and this is the best way I see possible at this time. Your feedback is greatly appreciated.
Instead of a heloc what about doing a cash out refinance and avoid taking on 2 liens on the primary and an open end debt. Helocs are like credit cards they can cause more issues if something goes wrong. I am sure like most people you have a low rate on your first mortgage but rates will come back down over the next couple of years.
You can take out the cash out and refinance for a lower rate and shortly after to lower the payment.
I didn't use my heloc for a down payment but I did use it for renovations so practically the same thing. The rate has been rising, started off at 5% when I used it and now it's 10%. It changes in the same direction (typically) as whatever the fed does. Every time they have announced a boost, my rate has trickled up. I've learned that HELOCs are really personal. It got me into a house hack with a 4% interest rate and one I am comfortable for living at for a while. So for me it was worth it. BUT somedays when I look at the remaining 35K balance I am like I need to pay that off ASAP. I agree it should be short term but everyone's idea of short term is different. For me my goal is paying it off in 2 years. I am just not a big fan of debt. I know someone though who has been using their HELOC to scale really fast and is more concerned about getting properties vs. the IR. This is also a strategy if you are more risk adverse but it's going to be dependent on your goals.
Using a HELOC to buy an investment property is a fine option. Yes your rate will be higher, but not much higher than if you financed that investment property with a 30 year fixed mortgage.
You say a HELOC is a short term tool. It doesn't have to be. They typically have a 30 year term, with a draw period of 10 years. Some banks also offer the option to fix the rate on your HELOC.
The main risk is making sure it cash flows. Many HELOCs are on an adjustment rate. You can set up a plan to pay it off quickly, or maybe a refinance makes sense later down the road. For me I just let them ride until I sold one of the properties and the other I'm keeping until I refinance later on.
Also keep in mind many lenders don't like borrowers using the HELOC money to buy another property. Just something to keep in mind.