Home Equity Line of Credit?

Question

Hey everybody. Im looking to get started investing in real estate, and i want to get started with a buy and hold property. I own a small business, don't make a lot of money on paper and don't have anything saved up. But i don't want to wait to start. I currently own the house I'm living in, and it is worth approximately $100,000 more than i owe on it. SO I'm thinking a Home Equity Line of Credit would be the way for me to get started on my own to buy a rental property. Any advice when dealing with one of these? Pros and Cons? Look forward to hearing from anybody that has some insight on the issue. Thanks in advance!

-Jordan Epping

Frank Chin · Answer

Some years back, I bought a 3 family for 150K, due to a crazy bubble, ballooned in value to 350K in 3 short years. I got myself a 120K HELOC with the purpose of buying more rentals.

Fortunately, timely for me, after I got it, the market moved down and in a few years, I was buying at auctions, and other great deals. I remember, in more then one instance, lenders asked me where the down payment is coming from, and not knowing better, I said from my HELOC. Turned out to be the wrong answer.

Fortunately for me, we partnered with my mother-in-law, and she accumulated quite a bit of savings through the years and my wife helped her manage it, and they set up joint accounts. These lenders wants to see seasoned cash, something that you had for while. So I told these lenders that if that's what they want to see, I'll bring in my wife's accounts.

I remember one lender looked at it, said, "this is what we're looking for, why didn't bring it in in the first place"?  So, loan approved, I proceeded to the closing, issuing checks from my HELOC account. I remember laughing to myself, saying "so you clowns have the nerve telling me I can't use my HELOC, so what are you going to do about it now"?