Analyze a deal with HELOC

[Conner Olsen]

I have some equity I want to pull out of my property using a HELOC for the down-payment of a buy-and-hold investment.

Does your underwriting change when you use this strategy? How do you factor in the interest payments? Are you also trying to repay the principle or just make the interest payments? How are you conservative when using an adjustable rate for a down-payment? I was thinking adding 2% for the interest payments.

Any other advice is greatly appreciated!

[Greg Kasmer]

Conner - If you're using your HELOC funding for a purchase, I would ensure you have a long-term financing strategy ready to execute. For example, if it's a BRRRR property then the money would be returned when long-term financing (i.e. Cash out refinance) would occur - you can then pay your HELOC funding back. As for how to account for payments - I would think that would depend on your HELOC. Typically they would have either an interest only period or a minimum payment that would need to be paid. I would ensure that you're making the minimum payment and I would prefer paying interest only over making principle and interest payments. I would not worry about the adjustable rate too much during this period (i.e. 6-9 months) as long as you have a solid plan in place to pay the HELOC back after securing long-term financing. However, if you want to be conservative you could always add 1% to the HELOC interest payments as an extra buffer just in case the rates do climb during the 6-9 month period. Good Luck!