Using HELOC of a rental to buy another rental

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Hi physician investors: What do you feel about using a HELOC on a rental (paid off) to buy another rental. The interest rate is very low even on the HELOC which is at 3.25%. The benefits are quicker closing time and lower fee, and the monthly payment is interest only at the first ten years. The rental will be cash flow+ at the beginning because of the lower monthly payment. If my job income remains stable, the HELOC can be paid back aggressively in two years with the extra money after all expenses. One argument is that if inflation comes, it will be like paying back the loan with cheaper money. The flip side is if the real estate market crashes in the next two years, there will be no appreciation. What do you all think? Thanks

[White.Beard.Doc]

Using the HELOC to purchase real estate could be a good idea, or not. The decision has to be based on the underlying deal itself. Will the property cash flow positive from day 1? Will using the HELOC leave the first rental property in a positive cash flow situation?

If you can take out the HELOC to purchase the second property, and both properties will remain cash flow positive, and if you anticipate no issues with vacancies or with renting to quality tenants despite Covid, and if you have sufficient personal funds to withstand an economic downturn and unanticipated vacancies or expenses, then you should be good to go.

[StarTrekDoc]

Also if the bank doesn't call you on it on sourcing it -- a lot of times they don't like you doing that. Pull it out two months before the need may be smarter.

[dennis]

Hi physician investors: What do you feel about using a HELOC on a rental (paid off) to buy another rental. The interest rate is very low even on the HELOC which is at 3.25%. The benefits are quicker closing time and lower fee, and the monthly payment is interest only at the first ten years. The rental will be cash flow+ at the beginning because of the lower monthly payment. If my job income remains stable, the HELOC can be paid back aggressively in two years with the extra money after all expenses. One argument is that if inflation comes, it will be like paying back the loan with cheaper money. The flip side is if the real estate market crashes in the next two years, there will be no appreciation. What do you all think? Thanks

As WBD says if the numbers work then go for it. I've used HELOC a couple of times for purchasing more income producing real estate and just consider it transferring equity from one property to another. Just be sure you can make the payments out of pocket if the new property has any hiccups.

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Thanks for sharing your experience and thoughts! The key is to not go buy a property that I cannot afford to cover it in a downturn without rent or depreciating.

[GIMD]

If the finance works out, I think it's a good idea given how cheap it is to borrow currently. I recently took out a HELOC to do the same. I did comparison shopping at Discover, TDAmeritrade, Suntrust, and BOA. WF does not offer HELOC at this time. The best rate I found was at BOA for 2.9% with 10 year draw / 20 year repayment period as a preferred member. If you want a good price, you may want to wait until at least winter time. It's a very hot seller's market right now with the low interest rate and pent up demand from spring during the peak of covid. Good luck.

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WOW that 2.9% is amazing! I took out this HELOC line in 2019 in preparation so it is 0.25% on top of prime rate. I am thinking exactly the same thing about waiting till the end of year or early next year for potential distress deal. I have looked at some virtual open houses recently in my area. Many listings actually increased their previous listing prices! Thanks for sharing your outlook.