My partner and I are planning to take out a HELOC to fund the down payment on our first rental unit. Going the short term rental route. Anyone have advice about repaying the HELOC? What advantages would there be in paying back loan slowly and increasing cash reserves? Or would folks recommend we pay back HELOC ASAP so we can redeploy the money to acquire 2nd property? Long term goal is to acquire enough properties to retire early. Thanks for your thoughts!
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
4y
@Steve Bell, your question would require more thinking if it was a term loan as opposed to a line of credit.
I would pay the line of credit off as soon as possible because with a line of credit you can take more money back out when you find a need for it. No reason to pay extra interest in the meantime just so that you can stare at a positive number in a bank account.
Lender · Orange County, CA · Member since 2019 · 299 posts · 255 votes
4y
You need to think about opportunity cost. What will you do with that money if you don't use it to quickly pay down the HELOC principal? Will it sit in the bank account? Will you invest it? If you will invest it, will your return be greater than the interest you're paying on that HELOC?
If the money would just sit in your bank account until the next rental property purchase or large investment, then do what @Kevin Sobilo said and pay the HELOC down quickly since you can just rack it back up again later.