Home Equity Loan or a HELOC? A shout out to all Moustachians with advice!

[Claudia Peralta]

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?

[frugaliknowit]

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.

[Cheddar Stacker]

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.