HELOC to purchase second rental?

[Varinder Kumar]

Now that my first rental is giving me a $500 cash flow I have about 120k in equity as well. I can probably use about 60k of that as a HELOC (home equity line of credit). I would like to purchase more rentals but do not have the down payment. Would it be a good idea to use a HELOC to purchase my second investment. I'm aware I have to make monthly payments on it. And depending on the amount I take out my cash flow from my first(current) rental may pay for those monthly payments on the heloc. I can save up money for another down payment but that may take some time. I love in California and looking out of state-Austin, TX, Phoenix, AZ etc where the down payment required at 20% not a lot due to the price of homes out there compared to California. I would really appreciate some advise as how to best move forward effectively. Thank you!

[Dave Van Horn]

@Varinder Kumar

If the cash flow from both properties covers all three mortgages (including the HELOC), and there's positive cashflow left over than you should be good.

And in my opinion, when it comes to lines of credit (not a Home Equity Loan), I would take out whatever you could get (even if it's above the down payment cost). That way, you'd have the extra HELOC money just in case you needed it. Also keep in mind that property values can fall, so what you borrow out as a HELOC today may not necessarily be available tomorrow.

And lastly, especially when leverage HELOCs or any money for that matter, it never hurts to have plenty in reserves.

Best,

Dave