Is a HELOC the ticket to becoming a real estate investor?

[Molly Bustamante]

Hi BP Community! 

As a first time real estate investor, I am currently sitting on some equity on a townhome I purchased in May of 2020 and looking to invest in a second property using that equity as a down payment. My plan is to rent out my current townhome and use the HELOC to purchase a second property (hopefully within the next year while the housing market in Phoenix continues to deflate) that I will then use as my primary residence.

My current property would cash flow a few hundred dollars a month which would be enough to cover the cost of the HELOC for the first 10 years only paying on interest. However, the process of using a HELOC to purchase another property seems a little too good to be true so I am throwing a line out to the community to see if anyone has any advise on things to be cautious of when entering into this kind of deal.

Any and all advise is much appreciated! TIA :)

[Mark Langdon]

Multiple HELOC's built my real estate portfolio from fix and flips to apartment buildings. I would get some more experienced and make sure you know what your doing but if done correctly it provides another avenue to buy a property by using it as a down payment but understand if you get a loan in addition to a HELOC down payment you are now potentially 100% leveraged which is infinite returns but if you don't buy the property right and you get a market crash and can't make the payments you can get yourself in trouble. Always have reserves. Even though some of my HELOC's you only have to pay interest only; I pay it off like it was a 15 year typical mortgage loan so its both interest and principal as my rents pay down the principal in addition to the interest but that's me. Everyone's risk is different but be careful especially since you are just starting out.