Leveraging Primary Residence Equity for First Rental Investment

[Jeremy F.]

For a first time real estate rental investor, is it a good idea to pull out equity from your primary residence in the form of a refinance, HELOC, or home equity loan based on today's current rates to fund your first purchase? If so, what would be the preferred method given today's terms and rates while still trying to protect the liability of your primary residence; what are the pros and cons of each?

This question reflects my current status as a new investor learning the ropes. Last year we refinanced our primary SFH of five years, originally purchased at $385k from a 30yr fixed rate of 4.25% to a 15yr 2.15%; today's market price is close to $550k. We have about $320k left on the mortgage leaving us about $230k in equity. My wife and I are deciding which is the best way to tap into this equity based on current rates and our plan for investing in small multifamily properties in the near future.

I love the vast experience and knowledge base of investors in the BP forums and appreciate all the feedback. Thanks!

Jeremy of VA

[Matthew Crivelli]

Sound like you have a good amount of money to get started! I would use a HELOC. That way you will only borrow the amount you actually need and can leave the rest of your equity alone. You can take this line of credit and use it for the down payment and all other costs associated with private money. Find a Brrr and pull the trigger. Hopefully you have created enough equity in the first project to not only start paying down the line of credit but also enough cash to stat Brrr number two! it sounds like you're in an expensive area, it might be wise to invest in other parts where home prices are a little lower!