Can you use HELOC to pay off HELOC?

Question

Hello,

I have a HELOC that I'd like to use for purchasing long-term hold rental properties (hopefully multifamily). The HELOC is interest only for the first 10 years followed by interest and balance payments for the next 10 years. My question is can you use a different HELOC to pay off the first HELOC as you approach the interest and balance payments?

thanks,

Brian

Simon W. · Answer

I have clients that uses their HELOC to fund down payments for a new purchase. It works. However, you really need to know if the numbers will work. This is a risky move, but it's real estate. What isn't risky? lol

Account Closed · Answer

@Brian Plajer personally I would stay away from using a heloc to fund a down payment. At that point you are using debt to fund 100% of the deal and that can be very challenging to make the numbers work for a long term hold. For me it’s a no, but you have to follow your number’s analysis.

Travis Timmons · Answer

You can't triple stamp a double stamp.

With the right collateral and debt/income levels to satisfy a lender, sure, you could do that. I would advise against that being your plan A though. A HELOC is best used as a short term debt instrument.

Brian Plajer · Answer

Account Closed I was referring to using the HELOC to fund the down payment

Account Closed · Answer

@Brian Plajer when you say use a heloc to purchase a property, what exactly do you mean?  Are you using the heloc to fund the entire deal, or just as a down payment?

Chris Davidson · Answer

@Brian Plajer you can do this. But just because you can do something doesn't mean it is a good idea. Having it as a back up to a back ups back up plan ok. But using debt to cover debt payments is robbing Peter to pay Paul, and you are spending way more on the deal than you realize. Also HELOC are floating so as rates change so do your numbers. This can work for short term maybe during a rehab or something else but you need to have the funds to cover the payment coming from somewhere even if its your w-2.

Going against the grain, I like funding properties with 100% debt, but I don't keep my portfolio at a high LTV as equity and cash are like get out of jail cards.  0% equity properties have little to no room for error and can blow up your investments quicker than anything else with shifts in the market or the numbers just not going as planned.

Best of luck!

Can you use HELOC to pay off HELOC?

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