This as-told-to essay is based on a conversation with Tate Cline, 38, about his experience using a home equity line of credit, or HELOC, to buy and renovated a three-cabin property into short-term rentals.
A man who lives in Delaware, Ohio, a city 30 miles north of Columbus, borrowed $150,000 against the current value of his primary residence to purchase and rehabilitate cabins in a rural area southeast of Delaware. He is going to use only $135,000. The line of credit was approved in April of 2022, but he didn't use the funds until October of that year. The interest rate on his loan has gone up since he bought the property, inflating his monthly payment. The current 10-year HELOC interest rate is 7.37% according to Bankrate.
He talked to Insider about the pros and cons of taking out the home equity line of credit. He's confident in his plan to grow his rental portfolio even though he acknowledged the risks of taking out a loan with a variable rate. The conversation has been edited to make it clearer.
I've heard of people buying vehicles with a HELOC before, so I'm familiar with that. I know a bit about it.
I don't know if I have my finger on the pulse of interest rates, but I do. They are moving every day.
I used a home equity line of credit to buy a property in southern Ohio. It's in the mountains, and it's a big attraction for a lot of people to visit. The property was purchased using the HELOC. I'm doing a full rehabilitation on the 26 acres with three cabins.
I have a $150,000 home equity line of credit on my main residence in Delaware, Ohio. I paid my down payment and the rest of the money for the rehabilitation of the cabin property, which is going to cost $100,000 to $110,000 with furniture. I'm using a home equity line of credit.
My home's value went up 40% when the housing market was very hot. It's a good time to take a HELOC on it.
Rates were 3.5% when I joined. My home equity line of credit number is about 7.5%.
It's nerve-racking that theAirbnb slowdown is happening. I own a property in Basye, Virginia, that I have seen it in a few times. At the same time I'm confident.
The economy is slowing down and people are not spending as much money as they used to. There is concern there. I think my numbers are strong enough that I won't be in a situation where I have a deficit and I'm out of pocket.
I don't think the rate increase will change anything for me.
I'm only going to have my line of credit for a while. I should be able to pay off the HELOC when I'm done with the property, because I will have pulled most of my capital out. I'm going to buy a house.
If I knew I had multiple exit strategies, I wouldn't risk my family's home. I see it that way.
I won't risk the roof over my child's head by doing something I've never done before.
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