Using HELOC loan as a down payment

4 Replies

As i continue to build my portfolio, I have considered using a HELOC as a way to purchase another property. I am wondering what the pros and cons are. I currently own a VA financed multi-unit property. I want to purchase another multi unit, using the HELOC as a down payment. Thanks for any constructive feedback.

Personally, I think you go with the cheapest, most available debt possible to get into rental properties and cash-flowing opportunities.  Why choose a higher rate on a rental property over a low rate on your personal residence?  Either way you are acquiring a loan for a rental property . . . you might as well use the cheapest debt you can find!

HELOCs are fine to use. I can't think of any downsides really 

I have done it successfully. Just realize you're doing 100% financing and make sure you are able to make HELOC no matter way. Losing rental properties is one thing, the roof over your head another.

The thing I really like about HELOCs is that the funds are available to you quickly with no closing costs. This makes them pretty attractive, especially if you're only looking at this as a temporary funding source for acquiring & rehabbing the properties. I don't really like a HELOC as a long term financing option. The rate is only attractive because it's a variable rate. If you ask for a quote to convert your HELOC to a fixed rate you'll probably be offered a rate somewhere around 5%, which isn't any better than what you can get on a refinance of the newly acquired property with a non-owner occupied loan. Refinancing the debt "onto" the new property could give you enough cash-out to pay off the HELOC, which is a more sustainable plan. Here you have the makings of a nice BRRRR strategy...you're ready to move on and repeat the process with the next house.

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