Using a HELOC to buy an investment property

General Real Estate Investing
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Using a HELOC to buy an investment property

Brennen Bridgeford
Member since 2020 · 10 posts · 8 votes

I have recently opened a Home Equity Line of Credit and wanted to hear people's opinions on using a HELOC to purchase an investment property. Interest rate is low and if I can find a property that cash flows more than my minimum monthly payment, it makes sense to me but definitely would like to hear others opinions. Mahalo

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  • Kathy Henley
    Rental Property Investor · St. Louis, MO · Member since 2014 · 741 posts · 424 votes
    5y

    @Brennen Bridgeford Keep reading Brennen. There are more expenses to investing in real estate than a monthly mortgage payment. The rental income should cover the principal, interest, property tax and insurance. One must anticipate a period of vacancy for refreshing the unit plus, reserves for the make-ready and marketing. If the investment property is out of state, include property management expense. If you borrow the down payment (HELOC), there will be interest payments expense until the loan is repaid. Create your own worksheet to analyze deals. If you find one that makes sense, go for it. If the rental income doesn't cover the expenses, you must reach into your pocket. Include a plan for paying off the HELOC. One must have reserves for maintenance and reserves for bigger expenses down the road (capital expenses).

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    5y

    If you use your HELOC funds to buy and rehab a rental, why wouldn't you refinance it 6 months later to cashout and separate your personal and business loans?

    Would also make it easier to write off the mortgage interest. Trying to do so with your HELOC isn't necessarily straight forward. You can only write off the interest on the total loan amounts (first & HELOC) totaling the purchase price + documented renovations to your primary. Otherwise, you'd have to document that you used the HELOC proceeds for investment purposes, have your business charge yourself interest that you could then write off on your business tax returns and claim the interest income your business pays you as income with a 1099-INT statement each year.

    Highly recommend you run your plan by a tax professional with real estate experience.

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