Investment through Rental Properies...Any 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?

[waltworks]

You will get better answers in the RE forum.

That said, more information is needed here.
-Do you *need* to tap equity to buy the rental properties? Talking with a mortgage broker may be a good idea here  since what you can qualify for and what DP you need will depend a lot on your income and situation.
-Is each home worth $350k, or are they worth $350k together?
-How much are the rental properties you are looking to buy?

I will generally say that if your entire NW is tied up in illiquid assets (in your case, RE) tapping equity to further leverage yourself may not be a great idea - you will need oh-crap money for when the roof has to be replaced or the boiler floods the basement and steams the paint off the walls of the house, or whatever. If you have liquid assets as well (ie stocks/bonds/cash/etc) sufficient to cover unexpected repairs simultaneously on several properties, then a home equity loan would be a fine way to go assuming the numbers work.

Posting more specifics will lead to more useful advice.

-W

[Bobberth]

You will get lower rates and higher LTV on your personal residence than the rental property.  But that is also your personal residence at risk instead of an investment property.  I am personally in favor of a LOC over a loan if you have the option, which you do.  With a LOC you can pay extra to lower your interest expense but still be able to pull that money back out if you need it instead of it disappearing when paying on a loan.  You also don't pay interest until you use a LOC.  For the loan, you will close on the loan and start paying interest even if you haven't purchased a property yet.  For a LOC, you can pull the funds out the day of closing on a rental property and only start paying interest then.

For rates, it's best to work with a broker as the market and banks change their rates frequently and who had the best rate last week might not be the best this week.  If you have issues finding something on your rental property, you might need to talk to the commercial department at some small local banks as they usually keep those loans and have different guidelines.