I'm curious if anybody here with substantial home equity has opted to finance a rental property with a HELCO? I considering using part cash, part HELCO.
HELOC? Home Equity Line of Credit?
I'm sorry. Yes, Eric. Home Equity Line of Credit. Mild dyslexia here.
Is there a way to edit the subect? I'm thinking the proper abbreviation might prompt more replies.
I have considered using a HELOC for short-term expenditures such as fixing up a rental property, but I'm not sure it's a good choice for a long term buy & hold. It depends upon your strategy and what you're looking to accomplish both short term and long term.
The issue with using a HELOC for long-term financing is that your interest rate is subject to change over time, unlike a fixed 15, 20 or 30 year mortgage. And with rental properties, I think one of the main considerations is controlling your costs so you're not running around trying to make ends meet later on when surprises pop up.
If you're only going to have the rental property for 5 or so years before selling and moving on to bigger and better things, it might be a different situation. However, most buy & hold owners are in it for the long run.
While I don't consider it a "substantial" I do have a C property that Im in the process of attempting to obtain a HELOC for. I want to use that money to buy another property and I'd just use the income from both properties to knock it down.
I have used a HELOC to help purchase an apartment. It was to help make the downpayment, not as the primary loan. We paid off the HELOC in a year and have reused it to make another investment. Works well if you have the outside income to pay it down but don't use it as the primary finance for a proerty.
I have taken out a $100K HELOC form my primary residence to purchase free and clear rentals. I have paid the HELOC down to $40k and have since reused the funds to help purchase a quad plex. My interest rate has been steady at 4.99 % for the past couple of years. It is true that the interest rates are not fixed so you need to proceed with caution. Since I own the quad plex free & clear, all my rental income is used to agressively pay down the HELOC. I may also use rental income from other units I own to help pay off loan as well as wages from my job if rates begin to increase.
Thanks for the input Joshua, Chris, Dennis, and Bridget. What I am taking away is that a HELOC is reasonable if one can realistically leverage cash flow and/or work income to knock down the balance (and knock it down fast) if need be. That was my thought but I'm glad to hear your experiences
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