How to Turn Your Equity Into Rentals with a HELOC or Cash-Out Refi (Rookie Reply)
Real Estate RookieShow Notes
Pulling equity out of your home to buy your next rental can feel like free money, but it isn't. Whether you use a HELOC or a cash-out refinance, if you don't run the numbers the right way, it can eat up your cash flow…fast. But if you get it right, the equity you've already built can fund your next down payment without draining your savings, while growing your portfolio!
Welcome back to another Rookie Reply! Today's first question comes from an investor who has owned a long-term rental for eight years, with significant equity. Now, she wants to use that equity to buy her next rental, but doesn't know how to account for the new debt. We break down how a HELOC (home equity line of credit) and a cash-out refi actually work, and how Tony used a HELOC on his own home to help cover his next down payment! We also run through the one test every deal has to pass before you tap your equity.
Ever wanted to help a family member find a stable place to live? We go head-to-head on whether to buy a condo or build an ADU, and share how to protect your investment (and your family relationships) if plans change. Finally, if you're ready to hire a property manager so you're not the one taking every tenant call, we’ll walk you through how to vet one, which fees to inquire about upfront, and the questions to ask before you hand over the keys!
Whether you're tapping your equity, housing someone you love, or handing off the keys, this episode will help you make your next move with confidence!
In This Episode We Cover
The difference between a HELOC and a cash-out refinance
How to underwrite your next deal when you're borrowing against your equity
The simple test that shows whether your new rental can cover the extra payment that comes from a HELOC or refinance
Stress-testing your interest rate before completing a BRRRR (buy, rehab, rent, refinance, repeat)
Condo vs. ADU when buying housing for a family member (that’s also an investment)
The questions to ask before hiring a property manager
And So Much More!
Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/rookie-784.
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