Rental Property Investor · Boulder, CO · Member since 2019 · 144 posts · 72 votes
Very first investment property. Let's say I'm buying a duplex for 350k. I might stay a little more conservative for a first property, but let's use this as a model for this question.
I have 40k in cash, reserving 10k for rehab. So 30k cash.
Requires 25% down, so 87,500. 87,500-30k = 57,500 for the down payment.
I could do a HELOC for this. Plus the loan. This seems risky.
If I do a HELOC for the 57,500 down payment, how do I calculate a sensible payment plan for that? It's not a standard amortized loan. It's more like a credit card at 4-6%. I can pay back as much or as little as I want per month.
I can calculate the principle loan, but how do I manage the HELOC pay back?
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
7y
The loan terms vary, but 1.5% of the outstanding balance each month is very typical for minimum HELOC payments.
It's likely that a HELOC model won't be profitably sustainable in the long term, but in the short run it's great until you refi.
The problem you have here is that you're using debt for the downpayment, this is the opposite of a downpayment and the bank is going to know you're doing this as they will source the funds and they shouldn't allow you to do it anway, though some will.
My opinion would be to go a little bit slower and wait till you have the actual cash you need for a cash downpayment
Rental Property Investor · Boulder, CO · Member since 2019 · 144 posts · 72 votes
7y
Wow @Alexander Felice that makes so much sense, thank you. So much value in these forums. As a newbie I would never have even thought of it that way. And like you say, I should probably slow down a bit. I guess I just feel an urgency to get something going, and if I can get farther along with the first property (duplex, triplex), the better. However two forms of debt on my first property makes me very nervous. With your response in mind, I will likely start instead with a smaller SFH, and save up a bit more for the down payment.
Wow @Alexander Felice that makes so much sense, thank you. So much value in these forums. As a newbie I would never have even thought of it that way. And like you say, I should probably slow down a bit. I guess I just feel an urgency to get something going, and if I can get farther along with the first property (duplex, triplex), the better. However two forms of debt on my first property makes me very nervous. With your response in mind, I will likely start instead with a smaller SFH, and save up a bit more for the down payment.
I'm in lending so I try to provide a bank perspective when possible.
There is absolutely an unseen hand of momentum that comes with these forums that urges people to go FAST no matter what, and that can often be dangerous. Our ego is not often a good investor ;)
Since you're in Nashville look up my good friend @Lee Huffman. Guy will be a good sounding board for this type of stuff in case there are times the forums fall short, I'm sure he'll be happy to let you buy him coffee or a beer and chat RE