Does it make sense to buy rental property using HELOC

Thanks

Zip Code: 92103

When purchasing rental properties, one of your goals should be to pay the least amount of interest on the loans used to purchase the property. However, with the HELOC, there are some risks:

1. Most HELOC's are not issued at a fixed interest rate. So if rates increase in the future (which they probably will as inflation increases due to the huge national debt), you might have been better off getting a fixed rate loan for the property.

2. If you have trouble finding a tenant, and can't make payments on the loan you took out to purchase the rental property, you might lose your home, since that property secures the HELOC.

3. And if you sell your home before you sell the rental property, the sales proceeds from your home will be used to pay off the HELOC, leaving you with less money to use to purchase your next home.

4. Finally, the equity in your primary residence is generally more protected from your creditors than the equity in a rental property. By using a HELOC to purchase a rental property, your maximizing the equity in your rental property while minimizing the equity in your home. In Massachusetts, you can file a homestead to protect the first $500k of equity in your principal residence, and if you are married and own your home as Tenants in the Entirety, then the courts can't force you to sell your home to pay off your creditors.


I hope this helps you out.

Zip Code: 01801