HELOC or Commercial Real Estate Loan

2 Replies

Newbie here trying to take his first action step!
Last October my wife and I purchased a new home and began renting out our old home, which can we happen to own free and clear ($150k).
We've loved owning a rental property ($1250/mo in cash flow) and are wanting to purchase another. We're thinking we want another $300 in cash flow but also want to start buying many more as well.
I had always thought the best way to go about it was a HELOC for the financing. Take out $60k maybe, but one house this fall, another maybe next summer. But a banker today (with what seemed to be VERY good intentions and desire to help) was very strong in his recommendation to not do the heloc, do a commercial real estate loan for $80k from the rental property, use it to buy the next house, then use all the cash flow to have both loans paid off in 7 years.
Long story short, I'm really confused now and scared to pull the trigger on anything.
Any help or thoughts?

@Tony Crabtree

 The trick is to understand both options and decide what fits you best. No one can tell you one way is better than the other because everyone has different goals and risk tolerances.  

I personally hold all my rental property under commercial loans. I was able to find a 20 year fixed rate loan that I used. HELOCs are typically adjustable rate. It boils down to how well each loan suits your goals. Do the math on both options pick one and move forward. The last thing you want to do is sit around thinking one or the other is a massive mistake because both would work and doing either is better than doing neither. 

Best of luck. 

Let me know if you have any other questions. 

Thanks Jered Sturm ! What I keep thinking about is the idea that I want to have some cash available to do another rental property within the year. It seems like if I go the route of this mentor, that wouldn't be possible.