Advise and opinion about funding first rental property

[Ludwig Taveras]

Hi everyone!

My fiancée and I currently own a home in Miami with an FHA loan at 3.625%, which is a fantastic rate compared to today’s market. My plan is to use the equity in this property to purchase an investment home that my mom and stepdad can rent from me. I’d charge them a rate below market, but still enough to cover expenses and provide some cash flow.

Looking a bit further ahead (in about 1–2 years), we also plan to buy a larger primary home, and at that point, we’d rent out our current place as well. The idea is to gradually build a small rental portfolio — something I’ve always dreamed of doing.

A couple of lenders have offered me a cash-out refinance, where I’d refinance my entire FHA loan into a new conventional loan to pull out equity. The issue is that I’d lose my low 3.625% rate, and today’s rates are much higher. On top of that, the cash-out offers I’ve received were only around $60,000, which isn’t as much as I’d hoped to access.

That’s why I’ve also been exploring a home equity loan (HEL) or a home equity line of credit (HELOC). These options would let me keep my current FHA loan with the low rate while still tapping into the equity. The HEL would give me a lump sum with fixed payments, but I’m leaning more toward the HELOC because of the flexibility — I’d only draw funds as I need them and pay interest on that amount, instead of paying interest on a large lump sum right away. For my situation, where I don’t need all the money upfront and want to manage cash flow carefully, that seems like the better fit.

Has anyone here been in a similar situation and can share what worked best for them — cash-out refinance, HEL, or HELOC? Any advice or recommendations would be really appreciated.

[Ky Perry]

That’s a really smart way you’re thinking this through — especially not wanting to give up that 3.625% FHA rate, since that’s a huge advantage long-term. From what you’ve shared, a HELOC does sound like the best fit in your situation because:

• You’d keep your low FHA rate intact on your primary loan.
• You’d have flexibility to only draw what you need, when you need it (great for managing cash flow).
• You’d avoid paying interest on money that’s just sitting in an account.

The main trade-off is that HELOC rates are usually variable, so you’ll want to plan for potential fluctuations. But for what you’re describing — a property for family now, then scaling into rentals over the next 1–2 years — it sounds like a very practical path.

Curious to hear what other investors on here think too — has anyone used a HELOC recently in this market and been happy with it?