Fears About Using a HELOC to Purchase a Short Term Rental

[Andrew Graff]

Good Evening All,

I recently opened up a HELOC on my primary mortgage with the intent to obtain a property in a strong STR market. The plan was to use the HELOC as down payment and renovation fund, then cash out refinance after the home was fixed up to repay the HELOC. In listening to Avery Carl's book, she brings up a great point in that it is often harder to find homes with distressed sellers in strong STR markets because of the financial background of many owners of second homes and the competitive market place with STR's becoming more popular.

Getting a home that does not have the opportunity to renovate to build in equity right away is possible, but I am hesitant to tie up the HELOC with the intent to pay back it over 30 years. In my head, it would help me sleep at night knowing the plan would be to get the additional leverage off my primary residence in a shorter timeframe than over the entire term of the HELOC.

My questions are: 

1. Are my concerns about utilizing the funds from a HELOC on my personal residence for a significant time period valid? What justification has helped people overcome this fear?

2. Is there a calculator out there to help find out how long it would take with additional payments toward the HELOC to pay it off? Maybe if the renovation and cash out refinance were not possible, the additional income of the STR could go directly towards the HELOC balance and it would not take as long as I think to pay the HELOC off?

I appreciate your time!