Home Equity to get started?

[Brian Prom]

Hey everyone.

I'm a new investor, who is currently in the paralysis by analysis stage.

I'm eager to get started, just having a hard time waiting patiently while I painstakingly build my lump sum of cash for down payment.

My question is, should I use my primary home's equity to get started? A little background.

Just refi'd my primary home, assessment came back at 156K. I owe 81K. If I did get a HELOC I would more than likely only take up to 25K to use as a down payment. Here is the problem I am facing.

I found a good deal, needs some work, but I can do everything so no big deal. I believe I would be getting the home close to %20 below market value after rennovations.

After mortgage and expenses (yes I figured in PM, Vacancies, maintenance, etc) the home will cashflow $170.00 per month.

If I take equity from my PH my payments on 25K would be ~$500.00 per month. (5 yr payoff)

That leaves me with $330.00 per month of extra payments to pay the monthly payment on the HELOC. I don't want to get myself in trouble with monthly interest only, or a super long payoff time.

The math doesn't lie here, I know what the answer will be, I need a better deal, or more cashflow, but properties that cashflow more than $200 a month simply don't exist (or at least come about often) in my selected area.

Is using a HELOC for buy and hold strategy not a good idea? Or am I totally missing something?

[Bryan N.]

@Brian Prom 

My advice is this. Don't overleverage. If you are going to lose sleep and change your families lifestyle when a unit is vacant, requires PITI, utilities, and $5K in repairs before you can rent it... You went too far. Keep the family life normal. Save up 20% for a down payment, find a property that cash flows after all relevant expenses (PITI, PM, maint, CAPEX, vacancy, HOA) and repeat. Once you have hit your target rental income, payoff all the mortgages and enjoy.