In this video, I’m sharing how to use a HELOC to invest in real estate, including my best tips on finding a HELOC in 2022 and beyond.
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If you’re looking for a HELOC, here is my best advice: make a plan in advance. Give yourself three or four months to really track down the right product and have the funds available. Start checking rates online on Bankrate, and then narrow it down to a handful of options you’d like to pursue. From there, you can go talk to bankers in person and see what they can offer. Local banks and credit unions are great places to start, and can often offer the best rates and terms.
Before you sign any paperwork, I want you to think about a few things. First, do you have enough equity built up for this to be a valuable option? If not, go back to my equity video to learn more about building equity. For investing, I would say that you’d most likely at least want to be able to cover a down payment with your equity, but that is ultimately for you to decide!
The second thing I want you to consider is paying back the HELOC. Some people refer to a HELOC as a second mortgage. That means you’re taking on a second payment, in addition to your mortgage.
So what is your strategy for paying it back? If you’re buying a rental property, the good news is that your tenant income can help pay down that loan! However, you will not create an instant cash on cash ROI since you’re using 100% of someone else’s money. There will be terms and payments upfront that will eat up that cash flow in the beginning, until you start to pay down the HELOC. It’s not all bad though – you’re still buying a great performing asset with strong IRR. It’s just something to consider. Everything has pros and cons, and these are your options to weigh!
And last, I want you to think big picture. How will using this money affect your overall financial snapshot? Will it become a big dent in your debt-to-income ratio? Will that affect your ability to grow your portfolio in other ways?
If you do decide to move forward with a HELOC, congrats! It’s a great strategy, and it’s one I’ve personally utilized multiple times. A quick word of advice: don’t get discouraged if you get turned down at first. Many banks are not offering HELOCs due to the pandemic, but a lot of local credit unions will offer them. It can be a great way to tap into your unused equity and grow your portfolio, should you decide it’s a fit for you, your finances, and your goals!
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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
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Hi Clayton, I've noticed you have a lot of people following from Australia, maybe have a small segment about the housing market there?
Regards,
Muneer
How much cash on hand does one need to cover repairs and mortgage payments between renters moving in and out?
those interest expense from HELOC is not tax deductible right?
What is the easiest way to find the best interest payment. I've applied for HELOCs and they won't show me the interest until the very end of the conversation. Is there a good place to find APRs I have excellent credit.
Thank you for your video. If HELOCS are simple interest payments, when does your payment go after principle?
Hard to find a bank that give you a HELOC on a non primary residence home. Is it best to buy a new property, move in for 2 years while renting out the previous property then repeat?
As a Canadian, I am currently looking into buying a house in Fort Myers Florida that is listed as a foreclosure and can only be a cash sale. If I were to buy this house with cash, would I be able to obtain a Heloc to do the renos on this house or buy another property? Can Canadians get HELOCS down there, or would I have to get one here?
Thanks 🙂
Can we have a cosigner for a heloc? Are there heloc products for under 600 credit scores?
Looking for advice and your opinion on a HELOC.i recently inherited a piece of property,the property is owned free and clear,my home is owned free and clear,the property I inherited was a rental up until recently when I raised the rent and the tenants moved out after 2 months.ive been doing a complete rehab on it out of my own pocket with 2 intentions.1 when it's finished rent it out again,2 sell it take the cash and look for another investment property.should I just keep it rent it out try and get a HELOC to recoup my money I invested in rehabbing and use the rest for another investment property.or sell it and use the cash?here's the real dilemma.i don't have a traditional income.self employed and my income varies so I feel it may be difficult to go through a lender.your input would be greatly appreciated.just started looking into options
Would you think it's a good idea to take out a heloc on my home to buy a 2nd home ?
So after you have acquired your “ HELOC” with the intention of using it as the down payment on your “investment “ property, how does one respond to the question ( that may be )on the mortgage application of the investment property: What is the source of the down payment funds ?
Hi Clayton. Great video. My husband and I own a 3 family owner occupied home, and have approximately 500k in equity. We'd love to either buy another multi unit property or a home to flip. We recently applied for a HELOC but was denied. Our biggest obstacle is my husband is self employed, and of course on paper (tax returns) the numbers don't look so good. Are there lenders out that base their decisions more on equity and credit scores? Thanks!
Are you a mentor? I been looking for a HELOC for the pass 6 months and Everyone I talked to said they don't loan on investment/rental property. Only on owner occupied.
Use heloc to pay debts first? Then invest? Or use investment income to pay debts? Current heloc is 80k available. Can request increase up to 60k more. DSCR to finance?
Nice video . What if you have paid off mortgage, do banks still be interested in giving you a home equity line of credit (HELOC)? What is the downside of taking a HELOC?
Blessed by the advice
Is 6.75% to high on a $160K HELOC?
I'm approved for a HELOC. So, now I will buy another. However, I will have to pay the HELOC back and the mortgage from the rental. I will have money left over. Should I get another rental with that money?
I feel like the heloc was designed to get property out of a private owner to a banks possession. They know most people are reckless when they have cash available to them. We just bought a house in cash because we didn't want a mortgage, but were considering a heloc to do repairs. Were leaning to not doing it until we learn more about the rates and how they change.