To HELOC or not to HELOC, that is the question

[Mark Cheeseman]

A friend owns a home in the Bay Area of San Francisco. The house if paid for and is generating rental income and he wants to know if a HELOC is a good move or not to invest in other assets.

Borrowing money is very cheap right now and he would like to know what are the pros and cons of a HELOC would be to use the money to buy more real estate in other parts of the country.

He would like to keep the property.  There may be an option to 1031 exchange it if the deal is right.

He understands he can take out a loan for up to 80% of the property.  I'm sure you all have some great ideas about what he can do.  Let's hear them.  

[Cooper Marcus]

Forgive me if this is obvious: A HELOC is a line of credit against which you can withdraw and repay money anytime for up to 10 or more years. A home equity loan, by contrast, is extended in full, once, (eg. you receive the full loan amount in cash, to do with what you will), then repaid on a fixed schedule.

HELOC rates float, but (in my understanding) home equity loan rates are typically fixed.

Given our historically low rates, I suggest your friend consider taking a home equity loan instead of using a HELOC. (Though that depends significantly on when your friend needs how much cash, and when they'll pay it back - if they need cash occasionally, and will pay it back occasionally, then a HELOC may be worthwhile, despite what might be higher interest rates).

One more idea: Consider a personal (unsecured) line of credit - it sounds like your friend may have the net worth / income to qualify for a decent-sized personal line of credit. Try Andrey Movsesyan at BBVA Compass (tell him I sent you, please)