Hesitant to get a HELOC

[Spenser Murphy]

I hope this is the right forum for this question. I'm just starting out in REI. I'm looking for solutions to acquire start up capital. My father is the only person I know with significant cash. He'd help me, but he plans to retire in 18 months. I created a lean budget to expedite saving towards a down payment. However, I can't qualify for the loan amount I need. I pay child support for 3 children. I own my house free and clear and learned what a HELOC is. I know a closing is basically a cash purchase. What are your experiences with them? I'm nervous to borrow against my home. Thanks

[Allen Fletcher]

@Spenser Murphy

Taking out a HELOC against your own home is a little risky, but the rewards are worth it. Think of your home as a vault. The more equity you have in your home, the more money you have in that vault. The only problem with that money is that you cannot use it. A HELOC will allow you to use a portion of that vaulted money. The key to using a HELOC is to ensure that you use the money to purchase an income generating asset and as long as you do your due diligence you have lowered the risk that you will have problems. In your situation I would take out a HELOC in order to help fund a flip then when the property sells pay off the HELOC and use the profits from that flip to continue investing. This will significantly lower your risk and allow you to start investing in lower return mthods such as buy and holds.

Hope this helps,

Allen Fletcher