1st Investment property - Should I buy using a HELOC or Conventional Loan

[Carissa Atendido]

First-Time Investor Looking for Lending Advice for Out-of-State Property

Hi everyone! I'm a rookie investor gearing up to purchase my first investment property. I currently live in South Florida, where high HOA fees, insurance costs, and property taxes make local investing a challenge. Because of this, I'm exploring out-of-state options—specifically in TN, TX, or GA—for a LTR investment.

Here’s a snapshot of my current situation and financing considerations:

• Current Home & Equity: I've owned my primary residence since 2018 and believe I’ve built up decent equity. I haven’t done a formal appraisal yet because I’m still evaluating which financing route to take.

• Option 1: HELOC
  I'm considering using a HELOC to tap into my home's equity. My plan is to make interest-only payments (and a bit toward principal) while I get the investment property leased. Once it's generating rental income, I'll aggressively pay down the HELOC to minimize interest.
  I found a credit union offering a HELOC with the following terms:

  • 6.5% fixed for the first 12 months (requires a $25K initial draw)

  • Variable rate after 12 months

  • No application, inactivity, appraisal, or upfront fees

  • No closing costs (as long as the line stays open for 3 years)

  This seems like a strong offer—would love to hear your thoughts.

• Option 2: Conventional Loan
  Another possibility is applying for a conventional mortgage with my fiancé. We both have excellent credit and low DTI ratios (mine is 32%). We believe we'd qualify for a mortgage, but our concern is that we'd have to make full principal and interest payments from day one—even if the property isn't yet occupied.

• Option 3: Use Cash
  I also have a solid amount of cash saved across HYSA accounts and CDs. While I understand the importance of staying liquid, I also recognize that cash sitting idle loses value to inflation. I could use this cash for a down payment and finance the rest with either a HELOC or conventional loan—but I'm torn on whether it's wise to use it at all.

So that's where I stand. I'd really appreciate your input—especially if you've faced a similar decision. What would you recommend: HELOC, conventional loan, or using cash (or some combination)?

Thanks in advance!

Carissa

[Nicholas L.]

@Carissa Atendido

hello.  here are a few miscellaneous reactions to your post. 

1. i wouldn't rule out Florida.  yes, you noted its challenges.  but every market has challenges right now.  (i do like that GA is close to you.)  i would not pick a place that is so far away that you can't be hands-on at all.  that has been a recipe for disaster for many new investors. see posts below.

2. buying using a HELOC for the down payment (or the entire thing) is going to be extremely expensive.  you say "once it's generating rental income you'll aggressively pay it down," but in the early years of property ownership you are not going to be netting anything - it will be your own cash / earned income that you will need to pay down the HELOC.  why do i say you won't net anything?  because there are lots of costs in the early years that new investors overlook.  closing costs - rent ready costs - deferred maintenance - a rough first turnover when a tenant leaves - all of the above  these add up.  be prepared to to be INvesting - putting money in - for 5-10 years to get a property stabilized.  yes, you read that right.  zero cash flow / net income for the first few years.  none.  not in any market.

3. it worries me that you say you are concerned about having to make payments even if it's not occupied.  this can come up not only on purchase,but when it's vacant and being re-rented.  this suggests to me that you might not have enough reserves and savings to start yet.  again, to repeat - you are going to need thousands of dollars in cash multiple times during the first year.  closing costs - rent ready costs - the property manager is going to take the first month's rent and possibly more to get it rented out - then the dishwasher is going to break.  if you're not ready to shell out for all of this that's OK.  but this is what you need to be ready for.

here are some posts from some folks who chased out of state cash flow and it didn't work out.  i commend them to you to assist you in learning what not to do as you start out.

Baltimore - a path to never-ending pain

Sell at a loss or rent at a loss

Experience of OOS investing in Cleveland after 1.5 years.

Memphis Turnkey Tenant Turnover Costs

if you have any more questions, i'd be happy to connect with you.  i have nothing to sell.