Should I use my HELOC to purchase my first investment property?

[Miraka Jones]

I am new to real estate investing and sometimes find myself stuck on where to start. I have done a lot of research and feel a bit overwhelmed. I am torn on whether I should use a HELOC to purchase my first property or continue to save and be patient so I can purchase through my LLC. Any tips or suggestions? I am also looking for a mentor if anyone is interested.

[Nathan Gesner]

Quote from @Miraka Jones:

I am new to real estate investing and sometimes find myself stuck on where to start. I have done a lot of research and feel a bit overwhelmed. I am torn on whether I should use a HELOC to purchase my first property or continue to save and be patient so I can purchase through my LLC. Any tips or suggestions? I am also looking for a mentor if anyone is interested.

Most will tell you to use the HELOC, but I disagree. If you want to purchase a $200,000 property and don't have the 20% down, you could borrow $40,000 from the HELOC and make it happen. However, this means you've borrowed 100% of the purchase price. And the $40,000 from the HELOC is probably at a higher interest rate than the mortgage. This means you are over-leveraged and at higher risk of problems.

I don't recommend borrowing money to borrow money unless you have high earnings and can pay the HELOC back quickly (under 12 months). The better, wiser, time-proven method is to save up. When you work hard to increase earnings, cut expenses, and save up for an investment, you will have skin in the game and be more likely to work through the difficult times and be successful. If you take shortcuts and the easy routes, you are more likely to fail.