Is my plan a good idea? HELOC + Rent

[Julyana Silveira]

My uncle owns his home and doesn't owe anything on it. I was thinking of proposing the idea to him of taking out a HELOC and reinvesting that money in other rentals. According to public records , his house is assessed at over 200k. He bought it For 70k. So taking out 70-90% with HELOC, reinvesting while collecting rent from the house is the idea.

But my idea was for him to take it out, me move in to his 3 bedroom, rent out 2 bedrooms either on Airbnb or fixed tenants. Have the rents from the rooms cover the full rent. So I can live rent free.

The house is a 3/2 in Deerfield beach, FL. It’s newly renovated. In a decent area. I’ve calculated that the rent would be anywhere from 1550-1800 for the area. I currently live in a 3/2.5 and it’s 1600 on a lake ! So I don’t think it’ll be more than that. Airbnb’s around his area with the same comps are at about 30-50/day. Rooms with fixed tenants usually rent for about 650-700 in the area also. And in this house it can easily rent for that much.

To sum up I want to know if this would be a good idea for both me and him. And if so what is the best way to present this idea to him? He has other properties and is a rehaber /investor. Just not on a huge scale. I'm not sure if he's familiar with HELOC strategy also.

I’m just getting started with investing but have no cash. I thought that maybe by cutting expenses (living rent free) is a good start. Then work my way up. I have experience in hosting Airbnb’s and having been studying a lot.

[Jaysen Medhurst]

@Julyana Silveira, I'm not sure I follow your plan.

• Your uncle is going to move out of his house (and move where?), so you can
• Move in and rent out the other bedrooms, then
• Your uncle takes out a HELOC, which is used to partner/capitalize your REI?

Am I understanding this correctly?

Here are the initial flaws I see:

• Your uncle will have to live somewhere else and incur the cost. How is that being paid for?
• Why would you be living rent free in your uncle's house? He should be collecting the rent on his property, not you.
• If your numbers are correct (house FMV, market rates), your uncle's house is unlikely to make a good rental. It doesn't hit the 1% rule (with you living for free) and so wouldn't be able to support the debt service on the HELOC after all expenses.
• Public records are notoriously inaccurate when it comes to property values. You need to see some good comps.
• I don't see the upside for your uncle. He can get a HELOC and use it for REI all without moving and subsidizing your living expenses.
• What are you bringing to the table and why would your uncle want to partner with you, other than you're his niece and he loves you? BTW, that's probably not enough if you're asking him to put $150k+ on the line.

A better approach may be for you to start bringing fully vetted deals to you uncle's attention. Include, projected returns, suggestions for funding (e.g. a HELOC on his home), and pay back periods. Offer to do the first one with no remuneration or stake, so you can learn from him and get a deal under your belt. Then, if you're successful, he'll be much more open to funding other deals in the future where you can get a split of the equity/profits.

In the meantime, why not look into getting a home similar to the one your uncle has with a FHA loan and house hacking? You'll dramatically reduce your living expenses and be able to start building equity, accumulating capital, and getting experience as a land lord.