Best Financial Strategy

[Josh Hall]

Hey everyone,

I am looking for opinions on the best strategy for my future plans.

I currently have around $100k in my home equity and $20k in personal savings. My plan is to renovate my current home, turn it into a rental, and purchase another property to live in for a few years, likely a fixer-upper.

My current home needs around $25k in renovations before it's rent ready. Should I pull out a HELOC in order to pay for the renovations, then use my personal savings for the down payment and renovations on the next property? Or should I use most of my personal savings to fund my current home renovations, then pull out a HELOC to fund the down payment and renovations of the next home I purchase?

I want to make sure I approach this in the smartest and wisest way possible.

Thanks! 

[Ko Kashiwagi]

Hi Josh,

It depends on whether you will be needing the 20k saving, your income and risk tolerance. If you don't need the 20k for the next couple of months and you have low risk tolerance, it would be safer to use cash. The main reason you would use the HELOC is to leverage, assuming you will be using the 20k for something else. Also, if you put in money into renovating your current home, you can increase the equity and qualify for a higher HELOC amount or do a cash out refinance. Fixing the home up first, then using a HELOC or refinancing would give more options for your next investment as you will have more capital.