Advice on using Home Equity Line of Credit to Invest

[Robert Hidrogo]

My wife and I have a home that we have lived in for 12+ years and would like to invest. My idea is to take out a home equity loan line of credit, buy a pre-fab home that I can place on a concrete slab (not a mobile home); place it on my land that is already payed for, and rent it out to pay for the home equity loan line of credit. I would then buy a 3rd home that I would like to finance through my credit union while renting out our home that we have lived in 12+ years. Here are the numbers: We bought our home for $139k, which is now down to $117k, the home is worth between $180-$200k, take out the 80% for the home equity loan to buy the pre-fab home and to install the plumbing, electrical and septic. Buy my 3rd home and make it my permanent residence and rent out the other 2 homes. If anyone could let me know if this would be a good idea or not or if I am missing something.

[Brian Pleshek]

@Robert Hidrogo cash out refi, basically means you have equity in a property and you're getting it out by refinancing(ie taking a mortgage).  

RE: Removing the risk from personal residence

The reason that investment loans are more expensive is that banks believe that IF you run into financial problems, you'll let your rental properties go to foreclosure first rather than letting your own personal residence go into foreclosure. And they're right. You'd rather lose your rental and have to move yourself. I personally believe that my house should be free and clear. Others will think that this is foolish to tie up capital that way. But to me, my personal residence is a lifestyle choice. It's not an investment. I don't want to live next to people. I also want to know that if I lose my job or if all my rentals go vacant, there's no mortgage to pay(on my personal residence) and I can't lose my place. So what I mean by removing the risk from my personal residence is that I am removing the loan off of that property. I use a HELOC to quickly acquire a property, because having cash gives you more options. Then after that transaction is complete, I will move as quick as a lender will allow me to put financing on that property and remove it from my home. Yes, I will pay a higher percentage rate, but 1-2% is worth sleeping well. What i'm doing in effect is borrowing from the bank for my investment property like many investors do. I'm just not waiting 40 days to get my money. I'm doing that waiting after acquiring it rather than before.

Brian