HELOC on first home as down payment for second

[Andrew Newcomb]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $280,000
Cash invested: $56,000

When my wife and I moved to a larger home to accommodate our growing family in 2017, we decided not to sell our existing home. So instead of using the sale proceeds from our first home as the down payment for the new home, we got a HELOC on our first home to tap into the equity and use as a down payment.

We then rented out our first home at a monthly amount that covers both the mortgage and the heloc payment on the first home.

What made you interested in investing in this type of deal?

The pros of keeping the first home outweighed the pros of selling. The numbers were clear that if we could find a way to keep the first home and rent it out, with the rent covering expenses, then in the long run we would be better off.

How did you finance this deal?

We used a HELOC to tap into the equity of our first home and used it as a down payment. The HELOC is an adjustable rate and therefore risk is involved. Of course, 2023 rates are getting high... so we are keeping an eye on the balance of the HELOC and will aggressively try to pay it off if it gets out of hand.

What was the outcome?

The property has cash flowed. But as rents increase in our market the cash flow has stayed roughly the same because the interest rate on the HELOC has also gone up. So the rent has not grown faster than our expenses.

Lessons learned? Challenges?

We posted our home for rent on zillow just to see what we could get for it. The best way to know for sure how much rent you can get is to actually list the home for rent. Once we found out for sure, then we felt comfortable about getting the HELOC and keeping our first home as a rental.