How to use HELOCs to purchase rental units?

Question

Jim Pellerin · Answer

A HELOC is a home equity line of credit. It is usually set up as a second mortgage against a property, usually a primary residence. Most lenders will allow the total financing up to 80% of the appraised value of this property. So if the property is worth $200k, you can get up to $160k of loans. If you have a first mortgage of $100k, you could theoretically get a HELOC for the balance of $60k. This will also depend on your ability to qualify for all this financing.

Once you have the HELIC setup, you can use those funds, $60k in my example, towards the purchase of another property.

You will still have to qualify for the financing of this second property. Also, keep in mind, you want to make sure that the loan payments to your HELOC are taken into account when you do the financial analysis of this second property.

Nathan Gesner · Answer

@Brian Sullivan read THIS ARTICLE to learn about a HELOC. The great thing about a HELOC is that you don't pay any interest until you borrow the money. It's sort of like a credit card but with better interest rates. When you borrow against it, you make payments (with interest) and pay it back down. AS you pay it down, the money is freed up to use again.