Using a HELOC to buy rentals

[Michael Morin]

Hey guys! I was wondering the pros and cons of using a HELOC to buy rentals. Personal experiences and how the terms were with your bank for the HELOC. I feel like its a good strategy and I'll most likely use a HELOC on my personal residence to purchase my first rental. What do you all think?

[Kerry Baird]

You also have to be aware that using the max amount of your HELOC increases your debt to income ratio, very much like a credit card. You used the phrase "depending on how the bank fees about my plan," which I used with a loan officer on a HELOC application. He was very specific that they didn't want the funds to be used for future acquisitions. Renovations, yes. Since HELOC terms are set by individual banks, you will find a number of varieties. Some do adjust all the way through, others are fixed for a set period of years, often 5 or 10, before the repayment period kicks in. Fees vary.

When I went looking, I pulled my own credit on MyFico and started to build a list, saying, "With a credit score of ZZZ, and a single family rental (or primary) worth about YYY, what kinds of rates and terms do you offer for HELOCs?" I called every single lender in my county and built a table of investor friendly and not so investor friendly lenders.