HELOC Questions

I would like to hear your opinions about using HELOC to purchase investment property? Still researching who has the best HELOC terms/rates etc. but my thoughts are to use the HELOC for downpayments on rental properties. We have the cash needed for 20% down payments but wouldn’t it smart to keep cash in hand and leverage equity in our home for investments?

Thanks in Advance for your help!!!


I don’t have any answers, only questions.

Will the rents be enough to cover both of the mortgage payments, taxes, insurance, maintenence and vacancies?

What about when the roof needs replacing or the heater goes out?

What about when your renters move out owing you for 2 months and you have had to evict them so you have that expense to top it all off?

Are your pockets deep enough to cover the expenses until you get things back on track?

What about when rents in the area get very competitive in your area and you have to reduce your rent to get someone to rent your property?

If you leave the money that you say you could use for a down payment on a house in the bank, how much interest will it pay?

If you borrow the down payment from a HELOC, how much will you have to pay?

If you invest the money in a down payment on a rent house, how much return can you get for your investment?

These are questions that you have to answer before you buy your properties or you may regret it later. If you buy the property correctly (read cheaply enough), your rents will allow you to answer all of the questions with a mark in the “to your benefit” column. If you don’t, you are setting yourself up for trouble. If the rents will marginally cover all the expenses, I would suggest looking farther because the least little ripple in the pond might sink you. If everything looks good, go for it but keep a substantial amount of buffer in your bank account to cover the things you missed or just were hoping would not happen until later.

I hope that I am not sounding too discouraging. I am a very conservative investor. I try to minimize the risks with each investment that I make, but by doing so, I probably miss some opportunities that others would take. Some investors will try to maximize their leverage. My personal philosophy is to maximize my gain with any technique that I can come up with, and that includes paying as little interest as I can get by with. Someone once told me that you should never buy insurance on anything that you can affod to lose. I guess that I like to extend that to include never borrow money for anything that you can afford to pay for since insurance is just paying interest on money you have not gotten yet (and may never get).

Good luck on your investments.