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I wouldn't do a HELOC or home equity loan unless it was a fixed rate.

You can find HELOCs that allow you to fix all/part of the amount borrowed. Just keep in mind that the fixed rate will be at a higher rate than the variable rate that you would otherwise be paying at the time that you fix that rate.

I think the advantage of a HELOC is that you typically are only required to pay interest during the draw period (typically 10 years).

No, that's not very common any more. Bank regulators have pushed banks away from allowing interest-only loans, even on loans that are being held in the bank's portfolio. As a consequence, most HELOC lenders require at least a small amount of principal repayment, even during the draw period.

I would also point out that for the HELOCs that do offer interest-only during the draw period, the interest will be at a variable rate. The feature of 'fixing' a portion of the HELOC generally requires that you amortize the loan amount over the remaining term of the HELOC. So your two stated goals of (1) paying only interest and (2) paying a fixed rate seem to be in direct conflict.

I would use the extra income from the 1st rental to pay off the HELOC during the draw period.

Why don't you just save up the extra income from the first rental (and any other income you want to devote to real estate investment) in order to come up with a down payment? That way you don't need to borrow for the down payment at all.

AJ
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