Home Equity Loan for first rental?

Question

First post, total noob.

I want to get started with rental property investing, and without waiting 2-3 years to save up 20% for my first rental property, would it be beneficial to use equity in my personal house with a home equity loan, to get started?  With 85% value, I would estimate about $85k available, which in my area would cover at least one rental if not two.

A secondary question, I want to start an LLC with the first property, how do I keep the business finances separate if I using a home equity loan?

Jon K. · Answer

To answer your first question, yes I personally believe it is and have done it myself many times. You can access the equity in your house either through a second mortgage as you said, or a Home Equity Line of Credit which I also recommend you look into. The advantage of a HELOC is that you won't pay for it while you're not using it (meaning while you don't have money drawn against it) and depending on the lender the payments may be interest only. I can't speak for Washington state but there are lenders out there that will loan you up from 90% all the way up to 100% of the value of your primary residence in a HELOC. The risk with either a second mortgage or HELOC is of course if you default, the lender will foreclose on your house.

Per your second question, obligatory I'm not a lawyer this is not legal advice, but it's not uncommon for a new business owner to extend personal funds as credit to their new business. Just document it well. If you have concerns about it consult an actual lawyer.