Use Substantial Home Equity to Buy Investment or Buy New Primary?

[Angelica Crawford]

Hi all - This is my first post, and I’m looking forward to getting some insight. I currently have $193K equity in my home with an estimated home value of $379K. We bought in late 2020 (in SWFL), so the interest rate is only 2.875%.

My question is - what is the best strategy for utilizing my home equity and buying my first rental? I have gone round in circles trying to figure this out. Because my rate is so low, a cash out refi doesn’t seem to make sense based on today’s rates.

I bank with Navy Federal Credit Union, and they have a great 20 year interest only HELOC option in which I could utilize my substantial home equity.

What option makes more sense -

1. Using some equity in the HELOC to purchase a new primary and to rent out the home we are currently living in. We would get a better conventional loan rate on a new primary (vs investment property) and be able to put less than 20% down (if we wanted to). Our current primary is a 4/2 and would rent for roughly $2800ish, so from what I am seeing would cash flow pretty well given our current low monthly payments due to our low 2.875 rate. However, this would limit us to buying something in a somewhat expensive SWFL market (we cannot leave the area) but we are open to it.

2. Use some equity in the HELOC for an investment in a more favorable market? While it is a goal for us to own investments in the market we currently live in (a growing market but expensive right now), maybe right now it makes more sense to look elsewhere for more cash flow.

Or something else?

Please let me know if any more information would be helpful. I’ve learned so much already on these forums and really appreciate your time. Thank you!