Tax Ramifications and general advice of Own-Occ Triplex with First Lien Heloc

[Taylor Walker]

Hey all.

I have prowled BP forums for a while and have gotten lots of good info from it, however I have not been able to find a good forum post for the question below.

Context

My wife and I purchased a fixer upper triplex in May of 2024 and live in one unit and rent out the other two units. We have already remodeled  the kitchens, updated plumbing, worked on the septic, insulated the attic, painted, etc. There are a few more “big ticket” items that need to be considered (Minisplits & landscaping) but most of the major costs have already been accounted for on this property.

We currently have a 30 year conventional mortgage with a 7.125% rate on a purchase price of $750k. I am looking to refinance in the near term either when rates drop to the 6.5% range into a conventional 30 year mortgage or as quickly as I am able into a first lien HELOC to be able to park paychecks into the mortgage and save a significant amount on interest or so it seems. There have a number of forums discussing the All In One mortgage around using you first lien HELOC like your checking account.

We have a reasonably high income from our W-2’s and rents with annual income in the $250k+/year depending on bonuses & OT worked and is usually closer to $300k. We also have relatively low expenses (personal expenses, mortgage/escrow on other rental property, and escrow on current property) that are around ~$120k/year. We are saving around 50%+ of our income on a yearly basis, while also putting away for retirement and we would both like to get out from under the mortgage on our primary residence sooner rather than later.

After plugging in some of our numbers to a spreadsheet to simulate a first lien HELOC it seems to indicate that we would be able to payoff our primary residence in ~10 years while also paying significantly less in interest from a conventional mortgage. I have also run the scenario of putting extra principle payments into the conventional mortgage, but we cannot put away as much, because we have to bank for large purchases down the road.

This spreadsheet takes into account that my wife takes a drop in income in the next few years to care for babies (growing family), also factors in major expenses on the rental property, and assumes that we have 10% rate on the HELOC to be conservative. This route also provides access to capital to fund some larger purchases in the next 5 years (roof, HVAC, siding, windows on rental property and last projects on primary residence) in the form of a HELOC if we were to go the route of a first lien HELOC/All In One mortgage. This is opposed to saving the $50k-60k to cover major repairs and the extra $30k to cover unexpected emergencies (job loss, health problems, etc.)

For context, we have another rental that we bought in September of 2021 with a conventional 30 year at 3.125% and purchase price of $410k. We have renters there now and they cover the mortgage with a bit of cash flow ($100/month), but the property is going to need some more major updates (windows, roof, HVAC, siding) within the next 5 years as they are starting to be at the end of their useful lives.

We would like to pay off our primary residence as quickly as possible to “free us” from mortgage payments on our primary residence.

My questions are below:

1. Would you recommend the route of a first lien HELOC based on the above situation and information? It seems like access to capital would be a major benefit in this scenario while also reducing interest on the HELOC by parking checks in the account at the same time.

2. What are the tax ramifications of deducting interest on the two units we rent out on a first lien HELOC if we are parking paychecks and using that line of credit for personal expenses (groceries, gas, maintenance items, vacations, etc.)? I understand that this is a forum and can't give me tax or investment advice, but wondering if anyone else out there is doing this.