Rental Property Investor · Oakland, CA · Member since 2016 · 602 posts · 250 votes
Hi BP,
I am trying to explore an idea about HELOCing my current home to buy rental properties. Has anyone on BP done this before and what are the inherent risk I should be aware of before processing with this creative financing strategy?
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
9y
My first four unit was purchased using a HELOC to help fund the down payment. I wouldn't say there are any huge risks as long as you can afford the larger mortgage payment on your primary residence. You essentially get to borrow your equity for historically low interest rates, and then park that equity in a cash flowing asset. This worked out well for me!
New guy here. Trying to figure out how to make REI my full time job and hopefully retire early. I'm 36, don't have a lot saved up. But I do have 60k in equity. Been doing a lot of researching on how to buy my first investment property. It looks like using a HELOC might be my way in.
Should I start small and find a property in the 50k range so that I can take a mortgage out after owning it free and clear?
Or should I use it as a down payment for a larger property?
Not sure if you're still searching for this answer, but I would imagine it would vary from lender to lender so I would verify ahead of time on the lien use ahead of time if possible. I'm in the HELOC process and I confirmed what is approved for use beforehand.
Real Estate Investor · San Francisco, CA · Member since 2013 · 24 posts · 0 votes
7y
Thanks for posting this question, I am looking to do this as well. My former primary residence is now a rental and has appreciated wildly (Thank you silicon valley real estate prices).
So I'm looking into a HELOC from an investment property, not primary residence. I believe the interest will be higher.
Flipper/Rehabber · Tyler, TX · Member since 2019 · 13 posts · 4 votes
7y
@Joseph Johnson I am in the same boat. I own my first home free and clear. Estimated 105k in value. From what I have researched, a HELOC is usually about 80% of current equity value. Looking to either purchase a rental in full or put a down payment on a Triplex. So far, what I have gathered is either is fine. As long as the cash flow makes sense. I still have a lot to learn, but my idea is to get a HELOC on my home, put a down payment on this Triplex (which is currently occupied by renters.) Use the rent money to pay for HELOC payments and Mortgage payments on the new property. At some point then do a 30 year refinance. Get the $ back I used on the down payment, and pay the HELOC off (or close to it.) Then repeat the process. I know there is so much more too it, and I am researching, learning every day in downtime at my current job (network engineer).
@Joseph Johnson I am in the same boat. I own my first home free and clear. Estimated 105k in value. From what I have researched, a HELOC is usually about 80% of current equity value. Looking to either purchase a rental in full or put a down payment on a Triplex. So far, what I have gathered is either is fine. As long as the cash flow makes sense. I still have a lot to learn, but my idea is to get a HELOC on my home, put a down payment on this Triplex (which is currently occupied by renters.) Use the rent money to pay for HELOC payments and Mortgage payments on the new property. At some point then do a 30 year refinance. Get the $ back I used on the down payment, and pay the HELOC off (or close to it.) Then repeat the process. I know there is so much more too it, and I am researching, learning every day in downtime at my current job (network engineer).
You pretty much got the concept down. But why close it after one deal? The beauty about HELOC's is you can do this over, and over again to build your REI portfolio. Assuming you qualify for more of course.
I realize this is a 2-yr-old post, but I'm new to BiggerPockets (and lovin' it!). Using our HELOC (2nd lien on our primary res) is how we plan to purchase our first rental property.
I was surprised in reading all of the posts that only one poster mentioned that a HELOC can be used as a checking account. This is, in my opinion, the best way to pay down the HELOC--by depositing all of your income each month into it, then moving funds out of it to pay your expenses (which should be less than your income). Essentially, this more than covers the interest due each month, AND the interest is lower because your daily balance decreases in a huge way with all of your income in it! (So fun to watch each month when the statement comes.) For example, our HELOC started out at $20,569 in March 2019. Today, it's at $13,566.13. When I pull money out in a few days to pay off the cc bills (where all expenses are paid), it will go up, but then it will come back down next week when I put 2 more income deposits into it. So each month, the HELOC balance reduces by about $1,500 - $2,000, depending on what our spending habits have been that month.
I learned about this from TruthinEquity.com.
Looking forward to learning much more about RE Investing here on the forums and the blogs . . .