Use our HELOC to invest?

7 Replies

Hi there, I'm Aja ("Asia"). I'm a homeowner (and newbie) with my husband here in Olympia, WA. We have built quite a bit of equity with this property. I'm here to learn how to leverage that to generate more wealth and income for our family. We don't have much invested anywhere else and my husband is in his mid 50s. So I would like to have real estate investments to help fund his retirement, and ultimately mine (I'm in my 30s). Here's my burning question. We want to move cross country and invest in a new property back east while holding our west coast house as a rental. We already have a HELOC. If we borrow from that for a down payment on a new property, would there be risks I'm not seeing? I don't really want to Refi because we already have a low fixed rate on our first mortgage. The cash flow from our rental should be enough to pay down the HELOC. What am I not considering? Thanks! Aja

@Aja Leafe-Hall I'll assume you know what a good investment is, that it makes sense to keep your house in WA as a rental, and that your question is limited to the HELOC.

What you are missing is that cash flow is not paying down your HELOC. Cash flow is what is left after. It means the cash you can expect to put in your pocket on average after paying the mortgage (your HELOC in this case), taxes, insurance, maintenance, capital expenditures (expensive repairs like a new roof), management, and vacancy/non-payment.

People who invest for appreciation may not care about cash flow.  Your net worth can increase even if you have negative cash flow.  But even if you are investing for appreciation, if don't have other money to take care of those other things, you'll want to make sure your cash flow is not less than zero.

Thanks @Larry T.
Sorry for my ignorance here, should I be factoring in the HELOC down payment for my original property income, or the one I buy with it?

If you want to make it really easy, just calculate total living costs (heloc/mortages/insurance/taxes) and then total rents. That should give you a rough idea if it's worth it. 

@Aja Leafe-Hall My wife and I actually did this on our first investment. We got a HELOC on our primary to fund the DP on the investment, but we didn't move anywhere. We just factored the HELOC payment into the numbers on the rental, ensuring the investment is entirely "paying for itself." I would recommend since you plan to occupy the new property, buy a small multifamily as a buffer. That way you can house hack the property, have more doors, and decrease your overall DTI. Of course, if this is feasible in your situation.

@John T.

Thanks. That is my plan. I'm thinking the beauty of the HELOC is we can make interest only or convert to a fixed loan at any time. Plus, no new fees to refinance and we get to keep our low rate on the first mortgage. I'm going to look for a 2-4 unit multi family that we can live in in the Northeast. That should more than pay for it!

@Aja Leafe-Hall Just wanted to see how this worked out for you as I'm about to do something similar. When i run some calcs, some properties that i've purchased on traditional loan only (and paid out of pocket for down payment/rehab) now all the sudden doesn't seem like it would have been a good deal had i used HELOC to pay for down payment/rehab/closing cost as it would take over 10 years to pay off the HELOC borrowing from monthly cashflow. Sure, in 10 years it would be free and clear (other than the primary mortgage on the property), but not sure if its worth the risk... let me know how its been working out for you

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