Buying 2 investment properties using home equity

[Travis Hester]

I have an investment property that is mortgage free. I want to take the equity in this property and buy two more properties. 

My question is, if I use that equity I'll have a mortgage payment on the two new properties and then a home equity loan payment. Is that the way to do this, or is there a better way? Or should you refinance the new property mortgage to include the home equity loan? Or is that the same thing? If I'm not making any sense, please let me know. :) I'm just trying to figure out the best way to finance more investment properties. 

[Eric Schultz]

Travis Hester

I would probably do a cash out refinance.

Here is an example of what this could look like if you have a 760+ credit score with one of the lenders I use:

30-year fixed at 4.75% for investment property
$125,000 appraisal value
$87,500 loan amount (70% LTV)
$2,900 closing costs, including lender fees + 3rd party services

$456.44 monthly payment, principle & interest only

The HELOC uses a variable rate, and that’s why they are best used for short term deals such as a flip. HELOCs work great for cash reserves on rentals as well.

It would be tough to accurately project your new rental property cashflows if your down payment came from a HELOC with a variable rate. You would need to have a game plan together and some reserves on paying down the HELOC balance.

Hope this helps.