Accessing Equity in Personal Home (HELOC)

[David Cam]

Hello, I have another question regarding accessing the equity in my home to purchase my second income property. I'm leaning towards the HELOC option to use as a down payment for my second income property. Any thoughts on this option and do most investors choose to pay interest only on the HELOC? The rates on the HELOC are higher than my current mortgage making the HELOC for a down payment more costly, would interest only payments be the best way to proceed with this?

David

[Levi K.]

@David Cam Hello David, I have used HELOC 2 times so far ro purchase investment properties.

When you use HELOC as a downpayment and the rest you get mortgage - your have non of your money 💰 in the deal, which means INFINITE returns 😉.

There many reasons why I chose HELOC and not a home equity loan:

1. it behaves like revolving credit card. Say that you used HELOC and paid some of it back, you can reuse it again (as long as you are with draw period)

2. You pay interest on the amount that you used. Say you got HELOC amount of 100K. If you utilized only 25K for the downpayment, your interest payment will be on the amount spent aka 25K.

I have used both interest only HELOC and interest plus principal HELOC. Of course with interest only you will have "more" money left each month. But remember that the interest is being calculated on the amount owned. Thus if you don't pay balance the interest stays the same (almost).

Also, please remember 🙏 that the investment property should be able to pay for itself and plus some money left in your pocket.

Since return on equity is ZERO (check out Get Rich Education podcasts 163), utilizing HELOC is great strategy.

Don't hesitate to contact me if you have any further questions.

Thanks,

Levi