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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