Advice on using home equity for financing

Hi, I’m a newbie and was considering purchasing an investment property with some current home equity. Any advice as far as pros and cons with this? My CPA says it’s a good idea tax wise as long as I have a specific cashflow plan.
Thanks for any input.

My friend took a line of credit off of his house since he had more than $30,000 in equity. Once we finish fixing our triplex, we also plan on taking a line off of the house. it helps to have lots of equity in the house, which you have. It’s better to use someone else’s money. ;D

Using the equity in your home as leverage is rarely a good idea. My question is this, with all of the creative ways to purchase investment properties (rehab loans, sub2, seller finance, etc), why would you put another lien on your house. In my opinion, it’s an unnecesarry risk.

As for me… the seller are not willing to do seller finance (if they own it our right) or Sub2 if they have a mortgage on it. Believe me, I have tried.

Home Equity is the easiest way to gain a large amount of liquid Cash and with todays Prime… it does not cost me that much.

Remember, my source of housing are not coming from distress sellers. May be when I find one. It will get done.

HELOC has these benefits.

Wont cost you a dime if you dont use it
Tax write off
simple ez with minimal paperwork.
and most of all

for security purposes . Where my rentals will be tie in a Land Trust. And my primary has so much lien on it that no one can touch when I get sue.


Motivated sellers will owner finance and do sub 2’s.

I would refinance and cash out some equity to purchase another property.

I’ve used equity in my house to finance deals, but I do agree using other people’s money is much better. The temtation when using your own money is to use more than you relaly need to. Seems odd, but it is true. Remember the principle of leverage and you’ll do better with less risk.

Thanks for the advice. Can you elaborate a little on the leverage issue? My plan was to use all or mostly all equity, since it is at a very low fixed rate, then do a lease option or finance someone else at a much higher rate. What’s your opinion?

Leverage basically means using as little of your own money as possible. When you use a lever like a wheelbarrow you can carry more than if you just tried to lift the object. With leverage you use a little of your own money to own the property. Many people think that using the equity in their home is leverage. Not really, it is still your money.

I am not opposed to doing this, as I said, I have done it. Problem is we get anxious to make a deal happen and become willing to use more of our own cash/equity than we need to do. When using your own equity think of it as money out of your pocket and act accordingly.

If you have $40,000 equity don’t be too quick to buy a property with $40,000 down. With good negotiation and patience you can find 2 properties for $20,000 down on each (or better yet, 4 with $10,000 down on each). this will increase your net worth quicker and improve your ROI (return on investment).

okay, good advice. I will look into how I can do this, thanks!

Just another note - your helocs are prime based and prime has gone up 1.25 in the last year or so - the end of year target for prime is 7% (and your heloc will be prime plus a margin on investment props) if the fed hold true on its promise to raise the federal funds rate as promised

in short - short position not a bad idea, longer term keep your finger on it and have a plan b.


Always use other people’s money! Using your own money to rehab is like letting a shopping junkie loose in the mall with a bunch of credit cards. What I have seen in the past is that when you use your own money people rarely take the time to focus on a plan and goal. Then you find yourself at Home Depot buying things that don’t truly increase the value of the property. There are many rehab programs that will allow you to base your LTV on a proposed appraisal, they will give you 6 months to Reno and set you up with draw schedules. This is a great tool because it makes you focus on setting up a plan to ensure future value.
Take out your calculators because we are going to do some math:
100,000 purchase with 30,000 in repairs is a 130k total acquisition. 10% down is 13k plus closing at 6.75 fixed rate on a 117,000 loan (principal and interest payment of 758.86) as apposed to 100000 purchase with a 90,000 loan (principal and interest payment of 583.74) this scenario would require 40k plus closing cost (10 k down and 30k repairs) from your heloc and would be an additional 175 interest only payment per month, that’s only if prime stay’s at 5.25% which is a total payment of 758.74 and your not paying anything down on the heloc. Your saving only 12 cents per month (can someone check my math) that’s terrible!!! 12 cent savings and your primary is at risk. And prime will not be at 5.25 for long If the project goes bad and is foreclosed on your still stuck with a 40k heloc and lenders aren’t going to be so quick to finance you with the foreclosure under your belt. Not to mention the damage to your credit.

What do you mean by sub2? Can you explain. I too was considering using a line of credit for my first investment.

I’m confused? Which part are you reffering to?


In your first scenario (borrowing 130K with 10% down) you neglected the 13k downpayment in your calculations. If the borrower got the money for the downpayment from a HELOC, they would have an extra 56.88 (interest only at prime) payment. If they had the 13k for the downpayment, they would not have to borrow that money from the HELOC in the second scenario and would only borrow 27K. Either way the difference would be 56.88 plus the 11 cents that you had calculated. This is still not enough difference (to me) to risk losing your home. To me, the first scenario would be a better choice since if you defaulted on the property and lost it to foreclosure, you would only have a 13K HELOC instead of 40K.


Thanks For The Help that’s why i asked for the math check. As i was going through it, the more i looked the more i realized that I was missing something.

Great advice and I absolutely agree.

To anyone looking to use equity in your home, reconsider!! Like I said I have done it, but I am as normal as the next guy and did just was mortgages said would happen: I bought a lot of stuff that wasn’t increasing the value of the property and spent more money on the rehab than I would have with a good plan and someone else’s money. Too true!

Plus, the risk is much higher and for the measely $57/month difference, I will choose to keep my home safe.