Should you use a home equity loan to buy an investment property?

Brie Schmidt, the managing broker at Second City Real Estate, also says it can be a good idea but adds that it depends on a few key factors. “To determine if it makes sense, you need to consider the interest rate on the HELOC and the rate of return you can get from the investment property,” said Schmidt. By running the numbers, you can figure out if it’ll be a profitable move or not.

Further, calculate the cost versus the potential returns. “If the HELOC has a rate of 7.5% the cash-on-cash return of the investment must be greater than 7.5% to make sense,” said Schmidt, “If the cash-on-cash return is less than 7.5% it will cost you more to borrow the money than you will make on the investment, and that’s probably not the right investment choice.”

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