Is it wise to use a HELOC to fund a down payment?

Question

Douglass Benson · Answer

When is leverage EVER not a good thing!?!  We bought our first two apartments (one a four unit and the other a 16 unit) using HELOC dollars.  Based on the returns I would do it again in a Michigan Minute!

Pete Sailhamer · Answer

Agree with the above.  It is a great idea (I have done it myself) as long as the property still cash flows.  It's also a great way to purchase a SFR for cash and immediately refinance.

Josh Robbins · Answer

Thanks all, the goal is to have a property that still cash flows with the 100% financing. I'm comfortable with the risk of being fully leveraged but I wanted to make sure I wasn't missing anything. The HELOC I have also allows you to fix a portion of it, in essence turning it into a home equity loan at a fixed rate for 5, 10 or 20 years. The plan would be to pay off the HELOC first with cash flow and other income (I'm full time employed) and repeat.

Jeff Trevarthen · Answer

It depends.  Will the property cash flow being 100% financed?  If so, are you happy with the return above and beyond paying all expenses including both loans?

Will Chamberlin · Answer

I think it really just depends on your risk tolerance. I recently used my HELOC to pay cash for a SFH in a great neighborhood out of state because it meant we got the deal and could close in two weeks. We are now going to do a delay financing or HELOC on the new house to get most of the money back out (70%) then just pay off the rest of the HELOC with w-2 income. The cash flow takes care of the payment and the house is already rented so the risk was fairly low for me. If you can cover the HELOC and the numbers work, I am a proponent. Not a lawyer or accountant, though. YMMV.

Carlos Enriquez · Answer

I was going to do that.  In my case, I had the HELOC, and was going to pay it off early when I sold my commercial property.  The deal fell through, so I didn't use the HELOC option, but my commercial property is still listed, and when it sells, I will use those funds for a 1031 as the DN (won't have to pay it back!)

Don't know if I would have done so had I not had a means to pay it off early.