What to do with heloc

Question

I'm looking for some guidance and advice. I have a fully paid for house and a heloc out on it for 235k . I'm struggling on what my best option is to get in to rentals, should I buy a single family or duplex out right or should I use the heloc as a down payment on something bigger such as a fourplex? Any information would be greatly appreciated.

Janice Carter · Answer

Aaron, you are in a strong position with that equity. It really comes down to your risk tolerance and cash flow goals. Using the HELOC as a down payment on a 3–4 unit can accelerate your portfolio and give you multiple income streams but you will also be layering debt. Buying a single family or duplex outright is lower risk and simpler but slower to scale. Run the numbers carefully and focus on cash flow after the HELOC payment, reserves and vacancy. If the deal doesn’t comfortably cash flow with conservative assumptions, it is not the right one.

Brad Seid · Answer

@Aaron Kirsch while a HELOC is a great option if you can qualify for a first mortgage or HELOAN I recommend going that route due to the interest rate being more competitive and saving you more money over the long haul.

The other alternative is doing a DSCR purchase loan which does not require verifiable income and the loan would qualify based on the rental and appraised value of the home. I do all of the above and am more than happy to give you an idea of what each would look like at the amount you need. Cheers and best of luck with you investment purchase!

Brad Seid · Answer

@Tim Kirk yes good point. What is your alternative for funds to close? Do you have other assets? Do those assets have a current return on investment?