Thoughts on using a HELOC for my first investment

11 Replies

Hello everyone! I am considering using a HELOC for a down payment on my first investment and I wanted to get everyone’s opinion on this strategy and if it’s a good strategy or not? Thank you!

@Cory Nolan ,

That's what we did, and it's worked great-- very cheap financing!    I'm guessing you aren't just doing cash deals, so make sure  to season the money for at least 2-3 months as banks will be wanting to see everything and anything to get an investor loan!

Originally posted by @Cory Nolan :
Hello everyone!

I am considering using a HELOC for a down payment on my first investment and I wanted to get everyone's opinion on this strategy and if it's a good strategy or not? Thank you!

This question comes up on new threads, every other day. Look some up.

[But no-one asks: How much lifestyle should I give up while saving enough deposit?]

A better question could be: How else could I buy an Investment (without actually saving up)? 

Anyway, sure, why not? What better use is there for a HELOC? All the best...

@Cory Nolan

I am about to the this exact same thing. My idea is to use part of the HELOC as a downpayment on a owner financed property and part of it to fix the property up, then refinance and pay off the HELOC - rinse, repeat so to say.

The most important thing I think is to find a very sound investment, something that is worth risking the equity you have in your primary residence or investment property. Even if it is a small risk, the risk is still there. 

Best of luck!!

Have you explored an All In One loan for your primary to gain access to your equity?  It combines personal banking with your mortgage in a banking mechanism that allows you to pay off your home exponentially faster while maintaining access to your equity.  I know many people who have used this product to purchase multiple investment properties using their All In One credit line on their own home.  Thus avoiding closing costs on additional mortgages by paying cash for investment properties.  

Originally posted by @Becky Crocker :

Have you explored an All In One loan for your primary to gain access to your equity?  It combines personal banking with your mortgage in a banking mechanism that allows you to pay off your home exponentially faster while maintaining access to your equity.  I know many people who have used this product to purchase multiple investment properties using their All In One credit line on their own home.  Thus avoiding closing costs on additional mortgages by paying cash for investment properties.  

But remember, you're doing one, or the other! (Not paying off quicker and investing!)

true, but the faster you pay it off, the faster you can use it to invest again!

Originally posted by @Becky Crocker :

true, but the faster you pay it off, the faster you can use it to invest again!

 Yep. But that can really only work if your income is already a lot less than your mandatory expenses! In which case, making extra payments, to either your HELOC or your (lower interest) mortgage, has fairly much the same effect, even if they're not made as "principal-only"! 

ie. No need to pay for an "all-in-one" product, which still requires ongoing discipline anyway.

Updated 8 months ago

Edit: Of course, I meant to write: ..."if your income is already a lot MORE than your mandatory expenses"...

AIO does work best in a positive cash flow household. If you make extra payments to your mortgage, you will not be able to get access to that equity unless you refinance or take a HELOC, which will incur additional expenses. Also it combines the personal banking mechanism to put your monthly income to work for you while it's sitting in your account. You can achieve a similar idea using a mortgage and a HELOC if your only goal is to pay down your mortgage faster but AIO combines it all together - pay closing costs only once and you won't have to take a HELOC later to get access to your equity.

Your're probably going to need a pretty good deal to break even or maybe cash flow going this route. However, if you have the extra cash ea mo this would be faster than saving up for the down, but know that when not if something comes up you'll need some health reserves. 

@beckycrocker thank you for the information about the AIO. I wasn’t aware of that option before. It’s an interesting product. After doing more research into borrowing your primary residence equity, I’m not so sure this is the best route, considering I have a 3.25% interest rate on my loan, I’m not willing to lose that to access the equity. So I’ll continue to try and get creative in financing my first deal. Thanks again to everyone that commented, I’ll really appreciate it.

Originally posted by @Cory Nolan :

@beckycrocker thank you for the information about the AIO. I wasn’t aware of that option before. It’s an interesting product. After doing more research into borrowing your primary residence equity, I’m not so sure this is the best route, considering I have a 3.25% interest rate on my loan, I’m not willing to lose that to access the equity. So I’ll continue to try and get creative in financing my first deal. Thanks again to everyone that commented, I’ll really appreciate it.

Afaik, you don't have to pay out your mortgage in order to get an additional HELOC.

ie. Your HELOC can take second position behind your ongoing low interest mortgage.

That is, providing you already have sufficient equity (and income) to qualify for a large enough HELOC to get you that elusive deposit for your next investment!

ie. How else can you get that needed deposit, quicker? Cheers...

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