Financing second home/investment property

[Sarkis Gezalyan]

Hello all,

Couple questions here when it comes to the best option to purchasing a second home or investment property. Between a heloc and home equity loan, which one would you do and why? I understand that with the heloc I’ll have variable interest rates, but how bad would that be? Also another question is the timing of all of this. Do I take out my loan first, then look for properties to buy? With a home equity loan this would be more difficult since I would have to pay immediately....any input will do. Thank you

[Cameron Tope]

Sarkis,

Great question! We're thinking through this with my parents house currently.

The biggest deterrent from doing the equity loan is, as you stated, the immediate monthly payment. The interest rate will be variable on a HELOC but you don't need to pay on it until you use it - I think this is the HELOC's biggest advantage.

If you're strictly using the funds for an investment property then I would go with a HELOC, which will allow you to purchase the investment property. Then refi the investment property into 30-year financing and pay off your HELOC. Rinse and repeat.

Hope that helps!