Getting started - HELOC leverage

[Kyle Cassidy]

I need some advice on how to best use a 250K HELOC. Background: I live in the Washington DC suburbs of Maryland. Bought my starter house in 2014. My wife and I thought we would stay for a long time so we renovated the kitchen, opened up the floorplan, did bathrooms etc. We got friend housemates to move in too. In 2016, a family property hit the market (grandma's 7 acres). It didn't sell for what they listed (needed a lot of work). After it left the market, I put an offer down. The offer was what I could afford, slightly under market value, knowing that the place would need a full overhaul. Family went for the offer, rented out the starter home to friends with lease, settled on the family property, moved in. Renovations on the family property took a year, doing most myself. In order to finish, we needed cash so we sold the starter home (a shame since it netted $500/mo). The sale was kind of a necessity though. I'm not sure if you have ever lived in a house while gutting and renovating, but the wife was not a happy camper. Fast forward through renno to appraisal, the house has 280k of equity in it. We qualified for a 95% LTV, variable rate HELOC at 5.6% starting APR Strategy: The original goal was to convert an external garage into a 2 story cottage. Then, we would either move into the cottage and rent out the house, or just rent out the cottage and pay down the HELOC over time. The problem with this scenario is paying down the HELOC quickly. I'll likely tie up that equity and then endure any swings in the prime rate as I'm paying it down over time. Still, there is good potential for cash flow here. I'm reading about how beginning investors use HELOCs to get started in real estate investment. BRRRR. The refinance is key because you can pull the equity out and pay down the HELOC. I'm less confident about the refinance scanario on my primary residence because I already feel like we got an incredible appraisal. I'm not sure how much a cottage would affect the appraisal. On top of that, our primary mortgage is 3.75% and I'd rather not touch that. I love infrastructure, habitat, building things, improving things, and making money. Safe to say, I'm thinking about going down the real estate investment path but info have some concerns. I'm worried about the market being at it's height, overextending leverage into properties with a HELOC, and losing my shirt in the event of declining home values. Should I stick with the cottage idea? Leverage my way into some RE deals with the HELOC? Both? Wait? Any investment pros in the DC area willing to mentor a young prospectful investor?