Advice on the best way to use HELOC

[Taylor Hutchinson]

I purchased a condo in a La Mesa, 2020. It has been a STR since May of 2021 and when its not booked I live with my partner nearby. The condo is still considered my primary residence so I am looking into a HELOC with a local credit union. Based off recently sold comps I can draw anywhere between 50-125K depending on which credit union I decide to work with.

In September I will be in a position to buy another property in San Diego with a minimum 3.5% down using FHA. My lender let me know he needs at least 6 months of employment history since I took a year off. Same line of work.

I am also interested in buying my first out of state property in either Nevada, Arizona or Texas. I still have some time do research and finalize on which market. This would require a 20% down payment. I would be able to do this sooner since I can start the HELOC process soon.

For an out of state investment I would prefer to rent to a tenant using property management, not use STR. If I decide to purchase in San Diego, I can SRT the property in the future.

Comparing 3.5% down FHA in San Diego or 20% down Conventional in another market seems to be similar amounts. I am looking for any advice from seasoned investors who can point me in the right direction.

From Sunny San Diego,

Taylor

[Drew Sygit]

@Taylor Hutchinson

You asked several questions.

1) HELOC - shop lenders. Banks & credit unions often give out HELOC's based only on credit score and that you are employed. They really don't do much due diligence on employment.

2) Have you been claiming the STR income on your tax returns to show you are an experienced investor?

3) Lenders on a purchase mortgage will ask where you got the down payment from. Which will lead them to your HELOC on your San Diego property. You'll not only have to qualify for the new purchase loan, but also with the mortgage AND HELOC payment on the San Diego property. Oh, and the HELOC payment must be for the balance on it PLUS the amount you plan to use for the down payment.
UNLESS you have a long-term lease for your San Diego home or have the STR rental income on your tax return. Then you can use that income to offset the mortgage and HELOC payments on the Sand Diego property.

4) Appreciation vs Cashflow is always a decision for investors. No one can answer that question except you! If you do go for cashflow, just make sure you understand the risks that come with Class B and C properties. 

5) BONUS - @William Spekhardt while not wrong with his note about HELOC's and rates, was not 100% correct. A HELOC is a Home Equity Line Of Credit against your property. Basically it's a credit card with your property pledged as collateral - you can charge it up to your limit and pay it down, and then charge it up again. Not aware of a credit card or HELOC that does NOT have an adjustable rate. They are usually tied to the Prime Rate, so the interest rate can go up or down - but with rates at record lows, it's more likely to go up in the near future.

You can also get a Second Mortgage on your property. This will be just like a first mortgage - you get a specific loan amount at a set interest rate. It's not a line of credit though. Once you pay it down, you cannot access the equity again - which is exaclty what happens on a first mortgage.