How does a HELOC work?

[Shane Woodman]

I'm looking at using a HELOC to help fund my next rental property. I currently have two single family rentals that each have equity in them. Does it make sense to use a HELOC to help fund another rental property? What are the pro's and con's of using this strategy?

Thanks for the help!

[Chris Mason]

Originally posted by @Shane Woodman:

I'm looking at using a HELOC to help fund my next rental property. I currently have two single family rentals that each have equity in them. Does it make sense to use a HELOC to help fund another rental property? What are the pro's and con's of using this strategy?

Thanks for the help!

HELOCs are ARMs but you only pay interest on the amount you have drawn, cash out refinances can be a 30YF but you pay interest on the full amount you pull out starting on day 1. Short term debt (ie, flipping), HELOC. Long term debt (ie, buy and hold), cash out 30YF.

BRRRR has characteristics of both a flip and a buy and hold, so really in that case it comes down to when you will need the money. In a year? Great, go get a HELOC and leave the balance at $0 until you need it.

Whatever you do, do it now before you have the property you want identified. I don't know how Virginia varies from Oakland, but around here no seller is going to wait a month or two for you to get the HELOC or cash out refinance done, they will just sell it to someone else who is actually ready to pull the trigger! So you do the HELOC/cash-out first, and then you go property hunting.