I am finally back, and I have questions.

[Eric R.]

Hello everyone,

I bought my first house two years ago free and clear.  I have 100% equity and am finally ready to buy my first rental property.  I got my property slightly under market value because it was an estate sale and the kids just wanted to sell asap.  So I got the place for $102k cash even though market value was around $125k+ and now it is worth $160k. 

I am thinking of taking a home equity line of credit of around $120k, being conservative on what the actual appraisal might turn out to be ($150k?).  

I could also take a loan on my house, but that would limit my options moving forward. The HELOC would allow me to bid at the county online auction, buy property as if I had cash, and jump on any deals as fast as possible on the mls. I could then rent the property, pay interest and principal on the HELOC only for a year and then refinance the property to get my HELOC back to $0. Assuming I do my math, get a deal, and do my due diligence. Which I did on my first deal so I assume everything I learned around here works and I should do as before.

I have read many other posts about HELOC and using equity to invest.  However, it's always a mixed bag.  To be expected I suppose.  

I am curious if I should only buy a property outright with my HELOC and then refi when I can, or if I should try to use my HELOC as a down payment on a more expensive property? I feel like that's an option but that I'm missing something and would lose money doing it that way. I would essentially be paying interest on my down payment AND the loan. But I swear I heard that people do this for profit. Not sure.

Does anyone have experience with HELOC and the various ways to leverage it? 

[JD Martin]

Yes. HELOC is a great way to prepare to buy a property. Buy it outright, refinance to get your cash back out, repay the HELOC, repeat when ready.