2 unit rental property and Home equity line of credit

2 Replies

Hello everyone my name is Mike Id like to introduce myself to the community. So excited to be a member of Biggerpockets and to begin my way to the top! My question is i am looking for a 2 unit rental for my first property. I am also going to use my Home equity as a down payment. Good or Bad? Also what loan type is recommended Heloc or Hel? Thank you!

Hi, Kevin! Welcome to BP! Whether it is good or bad really depends on your comfortability with risk. Tapping into your home equity for the downpayment can be an excellent way to maximize your ROI, however, being over leveraged can have it's risks. Personally, if I had sufficient reserves and there was enough cushion in the deal to allow for a rent drop, I'd feel comfortable using my home equity as a downpayment.

If it were me, I would go for a HELOC. With a HE Loan, the lender will likely disburse the entire loan amount to you which means you start paying interest on all of the funds right away. With a HELOC, you can maintain a zero loan balance until you find the right deal and then draw from your HELOC (at which point you will start accruing interest). Plus, on a HE Loan you will be paying principal and interest, while with a HELOC you'd probably only be making interest payments during the draw period.