HELOC on Investment property for down payment?

Question

Hi everyone! 1st post on BP. I’m 24, I recently bought my 1st property, a duplex in west MI. Bought it at $145k with a 25% down payment, and it appraised at closing at $165k. Both sides occupied and cash flowing well. Currently have about $57k in equity.

Looking to purchase my 2nd duplex soon, have enough savings for another down payment, but curious if I could use a HELOC from the 1st property to supply a down payment on the next one (as little money down as possible). Assuming the next down payment will be around $40k.

1. Is it tough to get a HELOC on an investment property vs primary residence? Will it be tough to get a loan on property #2 if the down payment is from the HELOC?

I’d plan on exiting the HELOC by refi-ing within 2-3 years of owning the next property, assuming I buy under market value similar to the 1st property.

Appreciate any insight!

Michael Garofalo · Answer

@Luke Larkin obtaining a HELOC will be easiest (and command the best rates) if it is against your primary residence. I did this and used it to fund a down payment on a larger multifamily building, but that was through a portfolio lender I had a pre-existing relationship with. Every bank is different but if I were you, I'd suggest using your own cash to fund the down payment for the next duplex, house hack it, and take out a HELOC against that which you could use to parlay into another property. But when you go to get a loan on that 3rd property, go through a local bank/portfolio lender that is flexible. Big banks are a pain to deal with and are not very flexible.

Just my 2 cents and how I would go about it. There is no single right answer here! PM me if you have more specific questions. I have used HELOCs the past several years to grow my business and protect me when unexpected CAPEX line items have hit at inopportune moments.