How to use HELOCs to invest in Canada (Toronto) ?

[Jan Walczak]

I’m a beginning investor in Toronto, Canada. One strategy I’ve read people recommend is: Buy, rent, refi. Re-financing once equity builds and then using those funds to purchase however I’m not understanding the finances behind it.

Here’s a hypothetical example (Actually based on a home purchase by one of my friends in the junction):

Original purchase price: 450k

New value: 950k

HELOC available: 280k

Even if you took the HELOC out for the next property (ex. a 500k purchase) you're now paying interest on the mortgage and HELOC simultaneously. Rental income in the GTA will rarely cover both. You'll be cashflow negative equivalent to the interest of the HELOC.

Purchase price: 500k

Heloc: 120k (20%) - approx $500 monthly interest

Mortgage: 380k - Approximately approx $2000 monthly interest and principal

All other operating costs (condo fees etc.): $1000

In this scenario let's imagine that you might be able to get 3k (doubtful but lets dream!) in rent, that HELOC puts you -$500 monthly as your total costs are $3500k. In summary I'm not comprehending how using a HELOC as downpayment works financially as you're hit with interest on all capital in the property.