My first post and home equity loans...

[Chris Webb]

Thanks to those who stopped by and read my first post. A quick introduction, I'm a web developer out of Columbus, Ohio and a serviceman in the Army National Guard. I'm looking to do my first flip this year and after listening to countless BP podcasts and reading countless books, I figured it's time to start executing. My goal for real estate is to create another source of income and spread my revenue stream beyond just my job. 

So, on to my first question. My wife and I the past few years have put all extra money toward paying off student loans, so I don't have extra capital to fund my first flip. So my plan is to take out a home equity loan to fund the flip. So my question is, what are your experiences with home equity loans and do you recommend doing them for your first flip? Meanwhile, I'll peruse the forums for answers too. Thanks!

Also, if you're a newbie like myself in the Columbus area. Feel free to hit me up for coffee and talk real estate. I'm all about learning together.

[Brad Clarizio]

Hey Chris,

Welcome to BP and thanks for your service! I am an "intermediate" investor here in Columbus (5 flips and currently own 10 rentals) so I'm certainly not an expert, but here is my advice:

Home equity loans are fine- they have a decent interest rate and ultimately, it's your own money so it makes sense. The downside of course is that you incur another payment and run the risk of losing your house if your flip "flops". Also, typically you can only pull 70-80% of your equity, so assuming you have 50k in equity, you're not going to get a crazy amount out (35-40k in this example). Ultimately, not enough to conduct a killer flip.

Any reason you'd like to do a flip over obtain a rental property? Have you researched the BRRRR strategy? That is the method I used and I closed on a 125k equity loan this morning (right at work, ha!). I'll take that payment ($850 a month) and buy 2-3 houses that will bring in $2500 or so in rent and I just gave myself a $15k annual raise this morning, year after year (after a few months of locating and rehabbing properties)- something a flip can't do.

Overall, my suggestion is to find a great rental property, save some money, pick up another and eventually you'll obtain enough money to flip. But with the tax DISADVANTAGES of a flip, coupled with the fact that you don't have any equity to start, you may want to reconsider starting that way. 

Best of luck!