New Investor with a HELOC question

[Kenneth Hadinoto]

Hi everyone! My name is Ken and I've been listening to the BP podcasts for close to 8 months now. Just started coming on the forums and wanted to introduce myself. I currently own the condo I'm in right now, and I'm thinking of looking for something to invest in. As far as money goes, once I find a deal and crunch the numbers, what would be the best way of financing said deal? I can probably find some people to go in on the deal with me, or should I take out a HELOC? What are the pros and cons of each? TIA for any help you could offer. I look forward to talking to all of you in the future.

[Trevor Alexander]

Hi Kenneth -

Welcome to the forum. Well, the biggest con of a HELOC compared to if you were to split funds needed from another investor, would be that it's a second mortgage that you have to pay back. On the other hand, going into a deal with another person will hurt your cash flow by the need to split it. If you do go in on a deal with someone, I would just advise to be 100% positive it's a good partnership.

Personally, (and if you have the flexibility), I like the idea of converting your condo into a rental and purchasing another 1-4 unit owner-occupied property with a 3.5% down FHA loan, or a SFR property with a 5% down Conventional loan. That'll be the option to purchase another investment with the least amount of money.

If you purchase a NOO, you'll need at least 15% down on a SFR (with PMI), or 25% down on a multi-unit.

If you can access enough equity, the numbers work, and you would rather not move, taking out a HELOC isn't a bad move. Just remember it's a variable rate, and HELOC's typically aren't the best to borrower large sums out of or to hold on to long-term.

Hope this helps!