Home equity to buy investment property - good idea?

2 Replies

@Ravinder Singh ,

You posted this under wholesaling, but you're talking about a buy & hold, landlord situation. Nothing wrong with that, but it makes me think you've got a learning curve ahead of you, which is NOT a bad thing!

If I were in your shoes, I would consider a few things.

First, if you're looking to grow in real estate, I would look to the long term. If you took all of your available equity to purchase something with some pretty good cash flow, what is your next step? What is your long-term plan?

Let's skip wholesaling for a moment.  I will certainly come back to that since I'm, well... a wholesaler.

If you were to implement the BRRRR method (buy, rehab, rent, refinance, repeat), you could add to your investment portfolio by essentially buying properties, increasing their value, getting renters in them, re-financing to get all or most of your investment back out, and then repeating the process. Each one of these houses will (if done correctly) create positive cash flow and also build equity as the loan is paid off. I haven't done this, but it seems like a good system. Read up on BRRRR here to learn more about this.

Now, back to wholesaling.  I'm in a similar situation where I have a small but reasonable amount of money I can dedicate to marketing. I am also putting some manual effort into connecting with local investors who can purchase properties for cash (for rehabbing or landlording).  As I find properties, get them under contract, and then turn those over to buyers, I stand to make a fairly good return on my effort.  This is NOT real estate investing as much as it is a way to build cash.  I can take that cash in the short-term and re-invest into my business to increase volume.  Once I have things rolling well, I will re-direct that income to buy & hold rental properties.  Personally, I want multi-family homes and small apartment complexes.  I just need to build up the cash first.

So, is your idea to use your home's equity to invest a good one? I think so. Should you buy your first rental property that way, or use that money to build a pipeline of deals to create more cash? That's up to what you think would be your best strategy. Read up on BRRRR and wholesaling. Ask lots of questions. Learn what you can, then go for it!

Best of luck!