HELOC or Refinance personal home?

7 Replies

Like most new investors, I am working on building capital in order to properly fund my first deal. I have a good amount of equity in my personal home and have a 2 part question to pose here: 1- Is using equity from my home to use towards the purchase of a rental proprty a good idea? 2-If so, would you reccomend refinancing and take cash out or get a HELOC?

It depends? I know that's a vague answer, but really depends on your overall game plan? Ask yourself, will I have a need for an ongoing line of credit? Is my game plan to flip or buy and hold? Do I feel confident that I can and will pay down a line of credit so that I can use the line again in the future or will this be a one time shot?

My guess is that if your getting your investment career off the ground, you will most likely need the line of credit. Something you can charge up and pay down over and over again. I'm assuming you wont just buy 1 unit, but rather many over time. Based on that, the HELOC seems to make the most sense.

However if you only need cash 1 time, then your better off doing a cash out refinance, with better fixed rates. 

I hope this helps?

1. This is truly a decision you have to make on the comfort of having a larger loan on your home, in the case that the market dips or you lose your income.  Do people do this successfully YES! Do some get hurt? YES

Can you lose your personal home this way...YES

It depends if you are secure in your normal job.

2. If you go get a HELOC then you will have to refinance the other property at the end of 1,2,5 years , whatever is the end of the HELOC. If you refinance your home you could be locked into either a great rate or a horrible rate depending on the market.

3. i recommend nothing......

4.   Well that is not true. I recommend you downsize your whole life including the home you are in.  Put away 50k for down payments and closing costs. Find a deal make that makes you money from the first month.   Grow that till it has made you another amount to put down on another home. and as they say herre rinse and repeat.  

I would keep my home and my rei business separate.  I don't wanna lose my house over a business.  I Love my house. 

Good Luck and if you have any other questions tag me and I will respond.

HELOCs are adjustable rate, and rates are going up. But if it's for flipping purposes, where you will use it, pay it back, use it, pay it back, etc, then that's the model match.

Cash out refinances can be 30YF, protecting you from rate increases. But it's a one-time thing, so model match here is for long term debt that you're not going to pay back in a month or two.

@Kevin Romines Thank You! Yes, I intend on buying multiple units over time and would like the use of the funds over time.

@Michele B. I am fortunate enough to have found myself with incredible job security so that is one less worry for me. But I do understand the risk as well. I just feel that I can do something positive with the equity in my home that I worked so hard to get :)

@Chris Mason I would be using the HELOC towards a buy and hold rental, not a flip. Would you still agree that it could still be a model match for that scenario?

@Jessica Howard We are in the home stretch now with our project and have decided to sell the property and move our profits on the the next one. We will be looking for a multi family property with value add opportunity. I am even starting to look at self storage as well. I am headed to Florida in a few weeks and hope to look at some properties there as well.