Rental Property Investor · Triad, NC · Member since 2020 · 6 posts · 3 votes
I know this has been discussed time and time again in terms of using your own primary residence HELOC to finance the down payment on an investment property... but what if the HELOC belongs to someone else? Family member, private lender, etc. Would that line of credit show up in my name or theirs?
There are a few posts about this strategy, but there are lots of unanswered questions about the tax implications of using "gifted/borrowed" money to finance an investment property.
Some of the suggestions are to have the funds sent to an LLC before purchasing a property, but it is my understanding that a HELOC is like a revolving credit card account, access to a credit line to use as needed. In other words, it's not an actual check being deposited into my checking account (or to an LLC), so I'm not sure I understand these "gifting" questions. Can someone help clear this up for me?
Realtor · Southern NJ · Member since 2017 · 188 posts · 68 votes
5y
It depends on where the property is held by your friend/family member. Assuming it is a home in their personal name, the HELOC will report to their personal credit report. Once the balance starts going up, that will show up on their credit report too and will impact their DTI. If you miss a payment, the late payment will show up on their credit report.
For you, if they write you out a check and you deposit into your bank account, it's just cash to you to use however you want.
I can't tell you about the tax implications, but if you are planning on using it as down payment for a property and are planning on using a residential mortgage company, it may be ok as a gift, or just let it season in your bank account for a few months. If you are working with a HML, it shouldn't matter in most cases where the $$ comes from as long as you have access to it.