Looking to get a HELOC from my home to start investing.

[Brandon Combs]

Brand new to real estate investing. I own a home and have good equity in it so I'm thinking of getting a HELOC from my home to help buy my first short term rental property. I don't have much cash to my name so would this be the best way to get started on my journey?

Also would it be smart to get the HELOC and use a small portion of it to help pay off some of my credit card debt?

[Jason Wray]

Brandon,

Make sure you evaluate your options between a HELOC and a "Cash out Refinance" especially if you plan on buying another investment home. Cash is king and a HELOC is a open end debt obligation and cannot be used as a liquid reserve which is required for an investment purchase. Banks/lenders require a PITI reserve (3-6 months worth of principle, interest, Taxes & insurance) in an account. HELOC's are also volatile meaning they are a risk based line of credit so since they are monitored monthly if your credit score changes or drops or your debt obligations increase the bank/lender can and will close or reduce your credit limit. That can be a huge downer when trying to finish projects or affect the down payment planned.

If you go and look at the data statistics show 85% of HELOC's eventually get paid off through a cash out refinance so at some point its a double hit to costs.