Paying off HELOC used for downpayment on Investment Property

[Arjay Vergara]

So I am trying to be a bit more creative with financing my first investment property. My wife and I bought a home a year ago and after talking to a big bank financial officer about taking out a HELOC on our primary residence, he said they should be able to do 90% LTV on the home which would give us $56,000. This is assuming I am low risk. If I am higher risk, I'll assume they might only do 80% which would give us $21,000. We have some cash reserves but would like to keep that for emergencies, vacations, future renovations on our primary residence, and future kids. That is why we started looking into drawing into our home equity to get started and get the ball rolling on real estate investing.

In either case (whether we get 90% LTV or 80% LTV), we are planning on partnering 50/50 with my father in law on SFRs with a target price of $100k. That would be $25k for a 25% down payment. Split that 50/50 is $12.5k plus closing costs, taxes, any minor renos, etc. So assume I use up $20k on my end total (father in law puts in another $20k for his half) for all upfront costs.

Im still learning about HELOCs and how they work, but I am reading that it is similar to a credit card and will affect our credit score. Assuming the same general rules apply, would taking out $20k be harmful to me considering it is more than 30% in scenario 1 where heloc LTV is 90%? and even worse in scenario 2 where LTV is 80% and taking out $20k would be almost using up the entire line of credit?

How do most of you use this strategy (using HELOC on primary residence for down payment on investment property)? And how are you paying it off?

I assume you want to pay it off ASAP. If that is the case, I would probably just use my income from our jobs to pay off the heloc, which could still end up taking years to pay off. Since we are interested in buy and hold, the cash flow coming in from the rental could be used to help pay off the HELOC, not much but still something. I would care more about obtaining properties rather than actually achieving cashflow initially so long as eventually I have rental properties that cash flow once the initial HELOC used to obtain them is paid off.

Do you guys have any guidelines or tips when using HELOCs from your primary residence to cover the down payment on an investment property?

Thanks!