Home Equity to Purchase Investment Property - Good Idea?

Question

Hello. As the title implies, I'm considering the idea of using a HELOC to purchase a first investment property. Any thoughts on this strategy?

Travis Timmons · Answer

A HELOC is a great short term debt instrument. If you don't have a plan to pay it off within a couple of years or force equity to refinance and knock out the HELOC, don't use it.

It's good for flips, BRRRRs, or a place holder if you find a screaming deal that you can't pass up until you get a big bonus or increase in income; however, it's not ideal as a down payment or purchase on a standard buy and hold. You're likely looking at close to a 100% financed property with at least part of it on a variable rate in that situation.

Jay Hurst · Answer

@Brandon Seider Travis above is correct. Borrow short term for short term needs, long term for long term needs.

So, if above you are asking if it is a good idea to buy a property with cash (using the HELOC as the cash source) and rehab to sell, or rehab to rent paying back the HELOC when perm fianncing is put in place. Or, buy cash and turn around right away and put perm financing on the property paying back the line. Those strategies are perfect for a line of credit.

On the other hand, if you are asking to use the line of credit to make a down payment with no plan on paying the line back that can be problamtic. Fixed rate options are better for that use.

Caleb Brown · Answer

What's the #'s look like on your primary? Are you going to use the HELOC to pay "cash" for a property or a down payment? I would look at the #'s and make sure you have the reserves and ability if life hit the fan. HELOC is great to leverage. If you are going to BRRR or refi out of the property you bought then I would think it's a good idea. Using it as a down payment would be riskier

Larry Turowski · Answer

You can search BiggerPockets for general questions like this, that have been asked thousands of times. Basically, it’s a great way to get started, and even to continue and thousands of investors have done it.

Home Equity to Purchase Investment Property - Good Idea?

Home Equity to Purchase Investment Property - Good Idea?

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