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Can someone share insight into how common it is among people who make a decent profit buying a second home to pay for it by making a down payment using equity against their first home?

I am considering doing this but don't have much hard data to support it. I want to look for an answer to this question by reading books on the topic, but because of poor reliability of the highest rated books {with many reviews} on the topic on Amazon using apps like ReviewMeta and Fakespot, I'm reticent to buy them; And in fact upon reading the one-star reviews of them, my suspicions that they are not good books are confirmed. Sometimes even when a book gets a good reliability rating (e.g., 4.5) on ReviewMeta, it still says "Warn" with respect to suspiciousness of reviews.

Examples of some of these books include the ones at the following link:

https://www.developgoodhabits.com/best-real-estate-investment-books/

EDIT: How successful are people at making a decent profit with this investment using a HELOC against their first house?

Can anyone recommend a good book on buying a second home/property one that was written within the past 2 years?

Thank you.

EDIT:

Investment? Yes

Type of investment(s): one condo or home at 20% down; Or two condos and or houses, each with half the amount of a down payment as for the scenario of one property. For example if I put 20% down on a house, the down payment is $120k; And with two houses/condos, it would be $60k each (even if I'd have to pay PMI); And with three houses it would be $40k each {even if I'd have to pay PMI), etc.

Approximate equity in first property against which I'll be borrowing: $280k

How I assumed I'd fund the down payment: HELOC at as low a 30-year fixed rate as possible if the best option (in terms of highest risk/reward) is to buy, rent out and hold for a while as it hopefully accrues value. But if something like a cash-out refinance makes the most sense then that works.

My local market where I'd like to purchase a rental property: Los Angeles area (e.g., Glendale, Burbank, Woodland Hills, Inglewood)

Additional questions I believe I need to answer as best I can:

What is my likelihood to succeed?

How should I compare the different locations in my area with respect to these different markets? For example renting in Glendale, ca is not the same as renting in the middle-of-nowhere Antelope Valley, Ca. So how should I compare them besides that one is slightly further away from where I live?

What exact practical steps should I take to evict a tenant? Do I need to hire a lawyer and how much will it cost? Or should I just hire a property manager to vet tenants to avoid the hassle if that wouldn't eat into profit?

How do I calculate the amount of time that my rental property is likely to be empty?

Is there a formula for likelihood for profit and/or for time a property may be empty that takes into account: the type of property, the location, the general type of population in the neighborhood...?

Please let me know if more clarification is required.

Thank you.

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  • I guess it would really depend... Is this second property something of an investment? Rental property? Flip-and-sell? Summer/vacation home? Is the equity loan a HELOC or cash-out refinance? I don't see any problem (other than amassing more debt) with the strategy, so I'm guessing you want to know how "smart" this is rather than how common (people can be quite stupid in groups).
    – Ron Beyer
    Nov 1, 2019 at 2:37
  • Books about investing are difficult as reference material because the people writing them are really just trying to sell books, not provide accurate reference material. Further, for something like your question, there needs to be some context - books written a few years ago may not apply in current conditions as banking practices change.
    – dwizum
    Nov 1, 2019 at 13:11
  • Ron, thank you for asking the important questions. In fact I was hoping a good book would assist me in answering them, but perhaps insight here is the best source of information...I'm leaning more towards using the down-payment for a second property as an investment that could both pay for itself via receiving rent every month and by accruing value over time. But also, whichever approach (investment property, flip and sell). would minimize risk at the same time is an important consideration. I plan to use a HELOC. Please see original post with more details on my context for clarity.
    – LeeZee
    Nov 1, 2019 at 21:45
  • Ron, I forgot to mention that yes, implicit in the question is how smart is it to do this type of investment? And if it's possible for the answer to be yes, then what is the best way to maximize the likelihood for it to succeed notwithstanding the liability of groupthink as social psychology tells us? Based on what social psychology tells us about how irrational thinking can be the more people there are in a room perhaps I shouldn't go to a meet-up to help answer my questions
    – LeeZee
    Nov 1, 2019 at 23:30
  • Ron, is the advice to never do it?
    – LeeZee
    Nov 3, 2019 at 5:01

2 Answers 2

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Type of investment(s): one condo or home at 20% down; Or two condos and or houses, each with half the amount of a down payment as for the scenario of one property. For example if I put 20% down on a house, the down payment is $120k; And with two houses/condos, it would be $60k each (even if I'd have to pay PMI); And with three houses it would be $40k each {even if I'd have to pay PMI), etc.

This plan won't work. In my experience lenders making loans for investment properties want to see 20% down. They are concerned about you having the property empty for a month or two. They are also looking out for people who buy a place, and then a few months later turn it into a rental. That will limit you to one rental property unless you have enough cash for multiple 20% down payments.

How I assumed I'd fund the down payment: HELOC at as low a 30-year fixed rate as possible if the best option (in terms of highest risk/reward) is to buy, rent out and hold for a while as it hopefully accrues value. But if something like a cash-out refinance makes the most sense then that works.

This also has problems. With the tax law change in late 2017 the interest on HELOC is not tax deductible unless it is used to improve the house. While a loan backed by the rental property is an allowable expense. The HELOC will probably be at a higher rate than the 30 year rate, and will also have a shorter term.

The lender will look at all your loans, the HELOC is still a loan and will impact your ability to get a loan for the rental property.

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Depends on the bank. Mine considers all my loans guaranteed by all my properties, and by my personal guarantee, as well. The division into my personal home loan (principal and interest) and the interest-only loans on the investment properties is just for tax optimisation and easy record keeping.

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  • Rupert, when you bought your second property, did you get a HELOC on the equity of your first home? Were there steps you took to maximize chances for success? If so, what were they?Thank you
    – LeeZee
    Nov 3, 2019 at 5:03
  • The bank didn't really consider the properties separately. It was total LTV ratio on all the properties an ability to make the payments.
    – Rupert Morrish
    Nov 3, 2019 at 18:01

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