HELOC for investment properties? Pros & Cons
Have an amazing deal now that we got for 1.4M and is already worth 1.9M. Once we rehab this 1960s home using a hard money loan of 1M, we expect to have at least 1M in equity. Our original plan was to use a HELOC to purchase additional investment properties (either multifamily or single family homes. Is paying cash for a property smarter right now or should we go the 20% down rule?
Hi @John DeWitt, congrats on the deal!
There are a few issues with using a HELOC to buy additional properties.
You need to make sure that you have a strategy to pay back the HELOC.
If you end up keeping it open for 3+ years, you could be paying double-digit interest rates and still not have paid down any principal.
Keep an exit strategy in mind. What will you do if rates continue to hike? Can you afford the higher payments? Can you pay down the principal?
HELOCs are generally better for short-term financing, such as using those to fund a rehab or a flip where you will get paid enough at the end to pay the monthly payments as well as pay down the principal.
Hope this helps! Let me know if I can be of any assistance.
That's kinda what I thought. Thanks so much for the input. She has more experience with flips so maybe we go that route to start. Regardless, I will keep the exit strategy in mind so we don't get overextended.
I’d talk to a lender who works with investors, but my initial thought would be to purchase with cash to get the best deal and then do delayed financing and pull out your money to buy your next property.
Robert
-
Real Estate Agent California (#02166235)
- The David Greene Team
- 310-720-1057
- [email protected]
Our lender probably knows our best option. It is about a year away from being done so who knows what the market will be like then.