HELOC to buy Investment properties - Is it ok ?

Question

Hi,

Is it a good practise to obtain a HELOC loan on a primary home to buy multiple investment properties by putting 20% down?

Will, there be any impacts on credit history or problems when obtaining investment loans for investment properites as I will be using HELOC for a down payment? If I need to buy 3 properties using HELOC should I buy all of them at one time? Or one after another? Which is advisable?

Lastly, any tax benefits if using HELOC for investment properties ?

Thanks

Account Closed · Answer

I did a lot of investing in real estate for more than 50 years and never leveraged with loans on top of loans because with one mistake your entire empire will fall like dominoes.

If you have the desire to become rich with real estate then get a 2nd or 3rd job and earn the cash to invest, first. You will make more money by using money you worked hard to earn and by taking your time vs. being in a rush to jump in and end up with properties that don't give you the best return.

Mike Mosee · Answer

HI Anthu,    You bring up several issues.   I will address the HELOC advantage as I've used it several times.  Done correctly, it gives you a tax deduction as mortgage interest.   To do so you should only use it for rental purchases.    Do so with the full intent to pay it off with the refinance.  This means the purchased property must immediately be cash flow positive & have appraisal value,  after any rehab , that allows you to pay back all or almost all of the Heloc funds borrowed.

You speak of 20% down.   The amount of down payment is dependent on the number of units you currently have & how many of those have mortgages in most cases because the percentage required down increases after 4 mortgages.   Always plan on closing costs & rehab costs in your calculations as well as holding costs if units are vacant.  We have always purchased one at a time to not over extend, but have purchased more than one per year with this strategy.

Good luck