HELOC For Portion of Down Payment

[Clint Brown]

I'm looking to purchase my first investment property and am targeting SFRs or small multi-family. I don't have the capital for the entire 20% down so I'm considering using a HELOC on my primary residence to fund a portion of the down payment on the investment property. I understand this is leveraging a ton but due to the high property values in the Denver metro and relatively high rents I think it can work. Does this make sense? What are other ways to get in the game without having the full 20% in cash?

[Bill S.]

@Clint Brown you have to run the numbers. The main issue with your approach is debt to income ratio. If you have adequate income then it can work with enough reserves. There are probably better returns on your money but if you are careful you should be able to come out good in 10 years. 

Something to consider is after you buy this one. What is the plan for the next one? Your equity in your home will be used, and your debt to income will be high. If your time frame for the next purchase is 5 years or more then you are probably ok. If not, perhaps you need a more creative approach, need to figure out how to save more, or need more affordable property or all of the above. 

I try not to discourage anyone from investing. I started on a shoe string in a hot market so it can be done you just have to have realistic expectations.