I borrowed $150,000 against my home to buy another property to list on Airbnb. It was worth it even though rising rates boosted my monthly costs by $140.
Many real-estate investors use HELOCs to grow their portfolios, but rising rates make them risky and costly. Tate Cline explained how he's coping.
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 renovate a three-cabin property into short-term rentals that he plans to list on Airbnb. Cline, 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 rehab the cabins, which are in Hocking Hills, a 90-minute drive southeast of Delaware. He plans on only using $135,000. Cline was approved for the line of credit in April 2022, when the rate was 3.5%, but did not start using the funds or have a monthly payment until October.
Since buying the property and starting renovations in October 2022, the interest rate on his loan has increased from 6.5% to 7.5%, inflating Cline's monthly payment by $170. (According to financial services company Bankrate, the current average 10-year HELOC interest rate is 7.37% as of January 4.)He spoke to Insider about how he decided to take out the HELOC and the pros and cons. Cline acknowledged the risks of taking out a loan with a variable rate, but he's confident in his plan to grow his rental portfolio, which already has one long-term unit in Delaware, Ohio and a short-term property in Basye, Virginia.
The conversation has been edited for length and clarity. I'm a finance manager for an auto dealership, so I've heard of people purchasing vehicles with a HELOC before. So I already knew a little bit about it. I wouldn't say I have my finger on the pulse of interest rates, but I do to a degree.
I see them move every single day.I used a HELOC loan for the purchase of a property in southern Ohio, in a place called Hocking Hills. It's in the mountains — as mountainous as you can get in Ohio — and it's a big attraction area for a lot of people to go year-round. I used the HELOC to purchase that property.
It's 26 acres with three cabins on it, and I'm doing a full rehab right now. This is one of three cabins on the 26 acres, and the first to be renovated. Tate Cline I'm using $150,000 HELOC that's on my primary residence in Delaware, Ohio.
I paid my down payment to purchase the cabin property and also all the money for the rehab — which is going to be probably $100,000 to $110,000 total with furniture. I'm using HELOC for the whole thing. The interior of one of Cline's log cabins after renovation.
Tate Cline When the housing market was getting very hot, my home's value increased almost 40%. What a great time to grab a HELOC on it and tap into that equity. When I signed up for it, rates were 3.5%.
It's an adjustable rate, so now my HELOC number is about 7.5%.The slowdown in Airbnb bookings is worrying, but I have a backup planThe Airbnb slowdown is definitely nerve-racking. I've noticed it a little bit in an Airbnb property that I own in Basye, Virginia. I'm nervous, but at the same point I'm confident. Rates going up basically coincide with the economy slowing down, and people not traveling as much, and not wanting to spend as much money on luxuries — which a cabin in the woods is.
So there's definitely concern there. But in the end, I think my numbers are strong enough that, no matter what, I'm not going to be in a position where I have a deficit and I'm coming out of pocket. Cline's monthly payment has gone up, but he's prepared and plans to pay off the loan soon.
Tate Cline I'm going to pay off the loan soon anywayThe rate increase is not going to move the needle a ton for me. I'm only going to have my HELOC for three months or so. I should be able to refinance this property when I'm done with the rehab, pull most of my capital out, and pay off that HELOC.
I'm going to do an adjustable-rate mortgage.That's the only way I would use the HELOC — if I knew I had multiple exit strategies to make sure that I'm protected and that I would never be risking my family's home. That's really how I look at it. I'm not going to risk the roof over my kid's head by doing something I've never done before.