Using A HELOC to buy new rental property
Hello Everyone,
As I have mentioned before, I was forced to “voluntarily “ leave the country 6 months ago for immigration purposes. My family moved in with my in-laws and we are currently renting our home. I’m in Mexico while I go through the process of becoming a resident.
I have been reading books, Rich Dad Poor Dad, Richest Man of Babylon, Secrets of the Millionaire Mind among others, I have also been watching regular BP seminars and videos on YouTube.
I’m really determined to buy a 2nd property as soon as I get back while still living with my in-laws or possibly doing a owner occupied multi family property.
What would be the best approach to doing that in Utah?? Interest rates are rapidly increasing and home prices don't seem to be coming down any time soon. I look at properties every day through Utahshortsale.com and the options to make a "deal" that would make sense or nonexistent. Would it be a good idea to use a HELOC for the down payment of a new property even if it doesn't cash flow say it breaks even???? Why or why not??? If we were to buy a house to live in we would be paying for the mortgage anyway? What are your suggestions or advice?
My knowledge right now is minimal so I’m asking a lot of what may seem like stupid questions, all feedback is greatly appreciated!!!!
Unless you have plans to somehow force appreciation of the property and/or force it to cashflow (e.g.; via a rehab or splitting a single fam property into multi fam), then using a HELOC for a downpayment on a non cashflowing property may not be a good idea (and even if you do have plans to force appreciation and cashflow, this type of maneuver probably isn't advisable unless you're highly experienced with investing and rehabbing). HELOCs are adjustable rate, and we all know where rates are going...if the property isn't cashflowing, you have debt service on the mortgage, AND you have debt service on the HELOC, how are you going to stay afloat? (much less make money?).
At the end of the day, it all comes down to money in versus money out. If the property isn't cashflowing, and if you can't force it to cashflow, then the only way for it to make money is through appreciation--and if your plan is completely dependent on appreciation, you are speculating (which can bankupt a person very quickly).
Good luck out there!
Thank you so much for that feedback.
My thought process is because we are renting out our current home that cashflows and we are not paying any rent or paying minimal rent to live with my in-laws and that’s my plan when I get back that we would have enough to make the payment from new property by the rent it brings in.
Hey @Omar Saucedo Cortes, sorry to hear about your immigration issues and hope you get that cleared up. I second what @Leo R. pointed out, w/ interest rates rising HELOC rates will go w/ it. The other thing to be cautious about in this environment is what if the outstanding debt on the HELOC gets called? It's probably a low-probability scenario, but if there were ever a time that this could happen it could be in the short term given inflation, recession and economic outlook.If you're looking for $$ to source for a DP and are open to multi-family perhaps you could raise capital from family or friends to help you with that at a lower/fixed interest rate, you could "house hack" and live in one of those units and/or offer another unit to someone who will co-invest w/ you, likely a bit safer of an option instead of leveraging a HELOC right now. All the best!
Thank you for the feedback!!!