How to Calculate Cash on Cash for HELOC?

[Brian Kwan]

Hello,

There's a duplex that's going for $250k, with gross cash flow at $1900. Vacancy at 7% ($133), Insurance $70, Maintenance / CapX at 7% ($133), Taxes $75. 

I've got a HELOC that lets me borrow up to $63,000 at a Variable interest rate of Prime - 0.25%. Today that means it's 4.75%.

If I use the full HELOC for the down payment, that's $250 / month in payments, and that'll give me $188 in net cash flow after all expenses.

I've also got maybe $30k I can put down, which will increase my cash flow by about $125/ month. 

So, my question is- would yall make the down payment pure HELOC? Or put down more of my own money for more cash flow?

How do you calculate cash on cash when you're using a HELOC for a down payment?

[Lesley Resnick]

WOW, my day is RUINED!  That is my read as well.  :-)  

I knew there was talk of it changing and subject to interpretation.  I incorrectly thought the IRS had not put out a statement clarifying it.  Seems clear to me now.

Keep the HELOC as an emergency fund!  

Originally posted by @Brian Kwan:

@Lesley ResnickAh gotcha. So.. I heard that the tax law no longer allows us to write off the HELOC interest rate.

https://www.irs.gov/newsroom/interest-on-home-equi...  

IRS Example 2: In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2018, the taxpayer takes out a $250,000 loan to purchase a vacation home. The loan is secured by the vacation home. Because the total amount of both mortgages does not exceed $750,000, all of the interest paid on both mortgages is deductible. However, if the taxpayer took out a $250,000 home equity loan on the main home to purchase the vacation home, then the interest on the home equity loan would not be deductible. 

Am I interpreting this correctly? I believe we can write it off if we make improvements to our house, but not to acquire another.