Considering using a HELOC for down payment

[Ryan Ohri]

Looking for feedback good or bad, for using a HELOC from my personal residence to finance the down payment on my first SFR. Thanks in advance for any advice.

[Nina Davenport]

That is the way I was able to start investing in Real Estate. As my mentors at the SJ REIA cautioned me though, I never used it for a rental, only as the down payment for a flip property. You don't want to tie up your HELOC funds, as mentioned above, for a long term hold.

The interest paid was part of my holding costs, just as if I had used a bank .

I used a portfolio bank in Collingswood NJ that was investor friendly, to finance the rest of the deal.  

Here's how it worked: I had to pay 30% as the down payment to acquire the property (used my HELOC). The bank financed the remaining 70% of the acquisition, and 100% of the construction costs. The payments were interest only on the amount I had borrowed TO DATE, which helped tremendously with holding costs.

 Of course I had to provide them with a detailed list of intended repairs, which they gave to their appraiser before approving my loan. In addition, I needed to have approximately $10,000 for the first repairs.  The bank will only pay on work completed, so after I had completed about $10,000 in repairs, the bank rep came out, took pictures, and gave me my first draw payment, to reimburse me. 

You can see how having a HELOC at your disposal is very handy for fluidity and ready cash. My HELOC was paid off at closing and I was ready to repeat the process.