IM NEW! | Can i/Should i use a HELOC to fund my first flip?

[Katie Bader]

Our primary home is paid off after 2 years of pouring every penny we could into it. The market value is about $300k. We bought it as fixer upper for $188k, renovated and now plan to lease it out. 

We (my husband and i) are driving ourselves nuts trying to agree on the best way to fund our first flip. 

*The reason we have decided on a flip as our first investment, is because we need the quick cash to build up our reserves to eventually buy rental properties. Our end goal, to grow a profitable portfolio of rentals that will support our growing family. 

Since we burned through most of our cash paying off our current house, we are researching a HELOC or Home Equity Loan as a way to get started without waiting a few years to save our reserves back up.

Does anyone have advice on this? 

Smart or dumb? Why? 

What should we watch out for?

Is there a better option? 

Sincerely - "Motivated & Lost"

[Christian Wathne]

Originally posted by @Dana Holland:

@Christian Wathne are you really suggesting that using a HELOC is the same risk as using cash?? The risk is that with a HELOC you are in debt to a bank and if for some reason (job loss, emergency situation, etc) you can't pay the bank, they come and take your home. People always say ‘oh that won't happen to me', but it happens every day. Debt is not a tool. I'm amazed at all the comments on this forum encouraging people to go many hundreds of thousands in debt. What happens if we have another housing crash?? I know it's not likely, but what if?? I don't want to owe $600,000 on real estate that is all of a sudden only worth $300,000

 Dana, I'll take it a step further; using a heloc may well be LESS risk than investing with your own cash. It's classic rich dad / poor dad. Debt when used wisely is absolutely a tool . Nearly every large/successful business and real estate investor in the world utilizes debt to accelerate growth.