Rental Property Financing advise

1 Reply

Here is my situation:


Moved from first home and have rented it with a +cash flow of about $200/mo for the past 4 years. Currently owe $91,000 on the $150,000 property.

Due to amazingly generous relative, we own our current $190,000 home outright.
We have just been blessed with $100,000 from an inheritance .

Our bid to acquire a property which we can absolutely rent for $1,000/mo was just accepted for $95,000.

My question is this- Should I pay cash for the 20% down payment or should I take out a Home Equity loan on the first rental property to keep the cash in my account and possibly acquire addition properties- should the right one come up?
I have been advise to take a HELOC on my residence, but that seems like an awful option to me.

Thank you in advance for your suggestions. I know I have been blessed more than I deserve and I just dont want to screw this up.

@Joe Shay

In this scenario, I would do a comparison of the pros and cons of each:

HELOC

  • Pros

Tapping into equity that is not really being used.

Keep your immediate cash to be leveraged for other acquisitions.

Relatively easy transaction (from a documentation standpoint)

  • Cons

Paying interest on the funds used (this should be factored in your acquisition budget).

Lower overall return

Using your own money

  • Pros

Potentially higher cash flow

Less paperwork - no need to secure two loans (HELOC and traditional)

  • Cons

Reduced capital

How does this individual transaction play into your long-term goals?  How fast are you looking to secure other properties?  The biggest thing is that you have a property (not really an asset since is not generating any income) that is not really being optimized.  If you are close to retirement and want to make sure you have no debt then that could be a different play, otherwise, I would look into putting that property to work.