HELOC vs Taking money out of the stock market

[Tom Stevenson]

Hi everyone,

I’m new to real estate and could really use some guidance. I currently own my home I live in (not paid off) and have one rental property that’s fully paid off thats profiting about 1k a month. I also have about $200k invested in the stock market (not retirement account).

I’m looking to buy my next investment property to grow my portfolio. I’ve heard about home equity loans and HELOCs, but I want to keep my money in the stock market to maintain some diversification.

My question is: would it be wise to take out a home equity loan for the full $200k to keep my stock investments active? Or should I consider withdrawing smaller amounts, like $100k?

Any insights or advice would be greatly appreciated!

Thanks in advance!

[Nicholas L.]

@Tom Stevenson

HELOC money is extremely expensive - if you buy something that is 100% financed, either entirely with the proceeds from the HELOC, or with HELOC money for the down payment and a conventional loan, you will lose money.

[Tom Stevenson]

Thanks so much. So when you buy your next property or use the brrr method, how do you typically finance it? Do you just do a typical loan/mortgage with a bank and use money in your savings account to put a down payment.

Just trying to figure out what is the best method to put a down payment. Take home equity or use the money I have in the stock market.

Thanks for helping as I am very new to this :) 

[Nicholas L.]

@Tom Stevenson

yes, when I BRRRR I typically use my own cash for the down payment, and a hard money loan for the balance. sometimes to reduce borrowing costs, I'll use a hard money loan solely for the purchase, and then pay for the rehab in cash or use a 0% credit card (I don't recommend that for new investors!)

[John Morgan]

@Tom Stevenson

I did a HELOC to get my first two properties. Then paid it off asap. So I'm a fan of using a HELOC to snag properties. Then I realized having 2 paid off rentals was the dumbest thing I could do financially. lol. So I used that equity and leveraged up. My cash flow went from only $1500/month with 2 paid off properties to 19k/month with 29 properties leveraged. Refi til you die!

[Heidi Kenefick]

@Tom Stevenson

Heloc’s have interest rates at like 10-15%. I recently opened one on an investment property at 13% interest. It’s an expensive way to get cash. If you have the money, just use it, rather than borrow. It’s safer, and honestly you aren’t spending it, you’re moving it from one asset class to another.

[Mohammed Rahman]

Hey @Tom Stevenson!

If you're keen on keeping your stock portfolio intact, leveraging your home equity via a HELOC or home equity loan could be a smart way to keep that diversification going.

A HELOC gives you flexibility since you can draw as needed and only pay interest on the amount you use, which might be useful if you're not sure exactly how much you'll need upfront.

That said, it's important to compare the interest rates between a HELOC and your expected returns in the stock market—if you're making more in your investments than you'd pay in interest, it could be a good play.

Just keep an eye on how both markets are performing, and maybe start small, like taking out $50k, so you can test the waters without over-leveraging.

[Jeff S.]

@Tom Stevenson why not HELOC as small as possible loan on your rental to buy your next rental? HELOCS are expensive so pay it back as soon as possible.

So now instead of feeding the hungry stock market you can feed the hungry rental.

I have watched people keep big debt on their home and then have the stock market crash. Not a good feeling.

[Kevin Hintz]

Hey! It sounds like you’re in a good spot with your rental and investments. I’ve dabbled in real estate too, and I think using a home equity loan can work well if you’re careful. Personally, I’d be hesitant to take out the full $200k right away since that could put a lot of pressure on your finances. I’d recommend pulling out just what you need, like $100k. That way, you keep some cash flow and stay invested in the stock market, which can help balance things out. 

[Bryan Stengel]

Hi Tom, I would reconsider taking out a full two hundred thousand dollars for a HELOC unless the numbers make sense in terms of possibly making that money back and paying off the loan. It is true that you'll probably only be responsible for paying off the interest for the first ten years. Truthfully though, I would do a cash out refinance for a large sum of money on my primary residence to ensure I do get a better rate. I know a HELOC normally does not come with much of a closing cost, but over the long-term, this might make the most sense. You will also get better terms on the refinance if it is on your primary residence too. In addition, the tax implications are better on a refinance which you will be able to deduct. A HELOC will not allow you to deduct I believe on the interest unless the money is utilized for repairs on your primary residence and not to buy another home. Best of luck!