Looking to take a H.E.L.O.C to buy a rental property !

6 Replies

@Mark Coleman It's a great tool to make a purchase because it gives you the power of making cash offers but you'll want to refinance almost immediately because you'd obviously get a better rate with a traditional mortgage. Plus you'll have the cash available again for your next deal. What city is the property?
@Mark Coleman That's a good rate. But like I said you'll wanna refinance soon after. Not necessarily because of a better rate in this case because that's a decent rate for investment real estate, but for the availability. You want to have the HELOC available again asap in case you run into a good deal. Using a HELOC, you have to be careful too. I don't know your level of experience but like any cash purchase, do extra due diligence because you may be tempted to skip some due diligence that the bank will typically force you to do to protect their investment.

Only use it on a rental as the minimum DP. The opportunity vale of cash will kill your cash flow if you have too much equity in a rental.

Mortgage rates at 4-5%, opportunity value of cash to investors 10%. Every dollar sitting as dead equity is losing 5% return or conversely sucking an additional 5% of your cash flow from the property. 

When you buy all cash, having too much equity, you are basically buying your cash flow and the property itself is producing nothing. The property is actually a liability as your cash could earn better return without the PITA of owning actual brick and mortor.

@Adeva Edobor I am very new to rentals! This would be my first buy. When you suggested to refinance would that be to refi the rental to pay back the equity loan? The homes I’m looking at are about 80k- 100k. I was planning to take a equity loan for the full amount. Most of the rentals fall in the 1% rule and will be positive in cash flow. I am trying to be very conservative on my first attempt. Sorry for the lack of experience and thanks for the help and time.

@Mark Coleman Sorry for the late response. I just saw this. Yes I meant refinance the property with a traditional mortgage to pay back the equity line. That allows you reuse the line. Think of the equity line like a credit card. You use it, pay it off and go shopping again.

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