The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Claudia Peralta on September 23, 2014, 11:29:26 AM
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Hey there y'all ! I have a question for any of you who have invested in rental properties;
My husband and I have 2 homes fully paid for (our residence and a rental property) both are a total of about 350k.
Our intention: purchase 2-3 rental homes with the loan at 25% down each (on average).
Given our situation, should we apply for a Home Equity Loan or a HELOC (Home Equity Line of Credit)?
1. Is this a good use of the fact that we own a home with no mortgage?
2. Which of the two options is best?
3. What banks have the best rates for these types of financial instruments?
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Great job on knocking out those mortgages!!
If I were in your situation, I would not want to use my personal residence as collateral for a rental property. I would want a separate mortgage. I might even start a separate entity to do this (an LLC?). This is just in case "things go very south", in which case it gives you more options.
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HELOC allows for more flexibility but with variable rates typically. If you identify one property and need $40K, take a draw on the HELOC. Two months later you identify another property and need $50K, another draw on the HELOC.
If you do a home equity loan it would likely be a one time thing and less flexible. I would go HELOC. Just do a search online for a good bank. 4% ish with a $50 annual fee is roughly the going rate.