How should I finance my first rental?

[Riley Greenup]

So my scenario is this: I work for a family company who is expanding, building a new office building in the town I live in. In the process they acquired a house and had it moved to a different lot so they could build the new office. They now are preparing to sell the house and it seems like it could be a great opportunity for my first rental as I already know the seller, I can see the home from my office, and I may be able to get a decent deal on it. Rentals are few and far between and highly sought-after in my town at the moment.

My trouble is this: how should I approach financing it? I have some equity in my home so I may be able to open a HELOC to leverage in the deal but also have a small chunk in savings.. is seller financing a strategy you'd use here? Or just go around shopping loans at local banks? My plan would be to rent it for a year and evaluate my situation (i.e. decide if I want to renovate and flip or keep as a long term rental)

Thanks in advance!

[Matt West]

Wow, that sounds like it could be a good potential deal. I am a newbie myself. It seems to me though it is all in the numbers as to what way works best. What are the comps in the are, does the house need much rehab, what are the average rent prices, how much will you offer, and how much equity/savings do you have? If you are looking to buy cash with leverage, like HELOC/savings then cash out refi, then using a HELOC isn't a bad way to go. I would not use an exit strategy that left my HELOC money in the deal from my primary residence though. If rentals are in high demand, I might play the long game on this one and hold for several years.