Line of credit in California?

[Jared Whitfield]

Hello all, For a little over a year now Ive been trying to get as much info on flipping and inventing in real estate as possible. For the longest time having enough savings for down payments was my biggest obstacle. Ive now saved up 10k and was thinking of taking a HELOC which could be around 40-50k. Is this something that anyone has experience with and is it a fairly decent way to get into REI? Also assuming I go the route above, would a conventional loan be the best way to do this? Another assuming question is, if all goes right, which is usually the plan but typically not the outcome, is the profit all subject to tax even if its partially used to pay yhe HELOC? thank you in advance

[AJ S.]

I would suggest to take a HELOC on your primary residence in first or 2nd lien position, it's much easier than getting a loan on investment property.

[Anthony Mott]

My advice:

1) keep the 10k saved up

2) Using a HELOC would be wise because of the low interest rate. I would personally then use the 40-50k to increase my buying power using Hard Money/ Angel Funds/Etc. While you are going to pay a higher amount of interest( significantly higher). I don't know what kind of property you have in mind but you will be fairly limited on LTV and rates that isn't going to vary much from what you could get on Alternative Funding.

3) I would highly suggest you prepare for a purchase using whatever financing method, but then offering a NNN/option with the same amount being offered as a down payment. This is one of the most utilized tools of seasoned buyers.

4) No, you wont pay taxes on the HELOC. It is a loan and a loan wouldn't be considered income.

5) While I am not assuming you don't know this, one of the most common misconceptions I regularly run into, is the idea that Cash Flow= Income. Cash flow can be revenue and cash flow can be income or profit. You will pay taxes on the Net Revenue or profit after your expenses, which will be your Income. There are various ways that will affect this as well. If I am leasing a property or buying one, regardless of where and what type. I create a Single-Purpose entity( almost always an LLC, just depends on the state). This alone will allow you to control much of the way you are taxed.

Goodluck