Taking a HELOC for 2nd home/move-up home (SF Bay Area)

[Roger Chan]

Hi guys, newbie here but I've been watching a few youtube videos and a boss actually recommended the Bigger Pockets PodCast and the world of real estate investment has mesmerized me and I thought I'd pose the question you see in the subject line above, I'm wondering if its feasible to buy a move-up property using a HELOC and renting out my current condo that I live in here in the SF Bay Area.

I figure I'd start small with just renting out my condo and seeing how that goes. But a little about my situation:

I Bought a new 1 bedroom condo in 2012 here in San Jose for $360K. In the 6 years of ownership, the area around it developed and has greatly appreciated. 1 bedrooms currently are selling for around $800-$825K (rough numbers from Redfin/Zillow). Mortgage+HOA is $2000 combined. Local Rentals and new luxury apartments are renting for $3200 a month for something of similar square footage. People renting out their condo in my complex is also around $2800+ being so close to shops like Target and Trader Joe's...and rumors of google moving in next door and being next to a major transportation HUB, the prices are justified here in Silicon Valley.

So my question is, is it a bad idea or is it even possible to obtain a HELOC to obtain a 20% down on a new "move-up" home? While I would ideally like to stay in San Jose but new townhomes start at $950K+ and older homes and even fixer uppers have bidding wars and I just don't want to deal with that for a "move-up" home. While I know people will suggest investing out of state, I am looking for an upgrade property for myself while renting out my Condo because its in such a prime location, I would HATE to sell just so I can buy. I mean, Bart and High Speed Rail is also making its way to where my condo is located.

With that said, I am thinking about moving up to Oakland CA where properties are also appreciating but not as fast as San Francisco or San Jose. A home I am looking at starts at around $759K. I just want to make sure I am not getting in way over my head. It's super risky but thought I'd ask. While people talk about the next big bust coming, this was said on another forum in regards to the SF Bay Area:

"Economic growth here will outpace all other metro areas in the US with the exception of maybe Seattle (which will tie I think). Monopolistic software companies like facebook, google, uber, etc. will suck in revenue from all over the world and funnel that cash into the pockets of bay area landlords. They're now so big and have such powerful network effects, AI & huge data sets, that pretty much nothing can stop them at this point aside from gov't regulation."

So any thoughts and opinions are MUCH appreciated! 

[Chris Mason]

From a mortgage perspective this is totally doable. 

I agree with your inclination to keep the condo. On top of the fact that you have some little baby $300k mortgage on Silicon Valley real estate, there's a little thing in California called Proposition 13 which makes long-term ownership of residential real estate tax advantaged. I personally don't think I'll ever sell California real estate, only buy. 

People talk about the "next big bust" like 2008-level implosions happen all the time. It's more like once a century... 1929 and 2008. But even if history were to somehow exactly repeat itself, consider people that purchased in Oakland in 2007. Some defaulted, some walked, etc, and others sucked it up and kept making their payments because they realized that being "under water" only matters if/when you go to sell. So, don't sell when values are down (& I will now take my rocket scientist boy scout badge please). Problem solved. No one ever said "sell your stuff when the value is lowest" was a good strategy anyways. Compare home values in Oakland in 2007 to 2017 -- if your "worst case" scenario is holding for 10 years and seeing that kind of appreciation, is that really the end of the world?