- Tate Cline breaded out $150,000 of his home’s equity to buy and revamp a 26-acre property for Airbnb.
- The interest on the home equity line of credit, or HELOC, was 3.5% in April, when he was approved.
- It’s now 7.5%. Tate surmised costs to rise so isn’t worried — and he plans to pay off the loan soon.
This as-told-to essay is based on a conversation with Tate Cline, 38, approximately 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 contemplates to list on Airbnb.
Cline, who lives in Delaware, Ohio, a city 30 miles north of Columbus, borrowed $150,000 against the au courant value of his primary residence to purchase and rehab the cabins, which are in Hocking Hills, a 90-minute drive southeast of Delaware. He sketches 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 availing the funds or have a monthly payment until October. Since buying the property and starting renovations in October 2022, the engross rate on his loan has increased from 6.5% to 7.5%, inflating Cline’s monthly payment by $170. (According to monetary services company Bankrate, the current average 10-year HELOC interest rate is 7.37% as of January 4.)
He spoke to Insider relative to 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 dauntless 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 chit-chat 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 in the presence of. 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 upset 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 high 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 chalets on it, and I’m doing a full rehab right now.
Tate Cline
I’m run out ofing $150,000 HELOC that’s on my primary residence in Delaware, Ohio. I paid my down payment to purchase the cabin fortune 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 well thing.
Tate Cline
When the housing market was getting extremely hot, my home’s value increased almost 40%. What a great time to grab a HELOC on it and tap into that tolerance.
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 peeving, but I have a backup plan
The 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 fretful, but at the same point I’m confident.
Rates going up basically coincide with the economy slowing down, and people not taking 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 about 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 camp.
Tate Cline
I’m going to pay off the loan when all is said anyway
The 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 skilled to refinance this property when I’m done with the rehab, pull most of my capital out, and pay off that HELOC. I’m affluent 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 shielded 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 floor my kid’s head by doing something I’ve never done before.