Use HELOC to invest single family or multiple family?

3 Replies

Hello BP Community,

I have $100,000 HELOC available to invest. There's a $100,000 single family house and $200,000 multiple family that I want to invest. I have a few question below, hopefully someone with experience can share your thought.

1. Should I use my HELOC to purchase the entire cost of the single family house or should I use the HELOC to pay the $50,000 ($200,000*25%) down payment of the multiple family house and financing the rest of the cost of the house?

2. If I purchase the single family house with my entire HELOC, can I get the refinance after purchase so I can get my HELOC pay off? is this a good idea to do?

3.If I purchase the multiple family with half of my HELOC with $50,000 down, and get financing for other $150,000. Am I getting two mortgage payment to pay monthly? will this limit my cash flow?

4. What is the best idea to use my HELOC?

Thanks you!

@Tony Zhang That is great you have the HELOC to invest in real estate!

Before deciding, what is your why in investing in real estate?  What goals do you need to accomplish your why? Do you want to invest for cash flow or appreciation?  Do you need the cash flow now or can it wait? What is your tolerance for risk? 

Do either of the properties advance you toward your goal in investing in real estate?

It is possible to purchase both properties with your HELOC by putting a down payment on each. By putting a 20% down payment on each would only use up half your HELOC. You can use the other half as a cash cushion, for rehab, or to purchase more properties.

You can also just buy the single family in cash if you wanted. This will allow you to have a paid off property from the start.

Long story short, it will all depend on your goals and tolerance for leveraging your funds to purchase property. There's no one right answer and is about personal preference. 

Lastly, make your you know your numbers on the property. Know what the potential income and expenses are and make good conservative calculations so you don't find yourself overleveraged with a property that does not cash flow. Take into account also that you have a payments on the HELOC once you take it out. Even though they are typically interest only during the withdrawal period, it is something you need to account for.

Have a great day!

@AJ H. Thanks for sharing your experience. If I put all my heloc to the single family rental. Then how could I pay off my heloc soonest? Can I do cash out refinance right after heloc? What if the refinance isn't cover all my heloc expenses?

@Tony Zhang You can typically refinance out without the normal 6 month seasoning period if you pay all cash for a property. I've seen lenders get more strict on that recently with the pandemic going on. I was still able to get an all cash property refinanced, but they only financed based upon purchase price instead of appraised value.

The HELOC will be considered same as cash when you use it to purchase a property. You could refinance after closing to pull out most of the equity and then pay down the HELOC. However, the lender will likely only finance up to a certain percentage of the property's value. This is usually between 60%-80%.

If you plan to refinance an all cash property right after, why not just finance at from the beginning. This will save you from paying closing costs twice. If you plan to add value to the property prior to refinancing, then this may be good method. The value you add may increase the property value enough to pay down the HELOC.

Good luck!