Using HELOC to buy first investment property

[Mathew Campbell]

Hi all,

I'm looking for feedback on my investment strategy, and maybe some insight as to where I haven't given enough thought. My wife and I own our home (no debt) and have available equity in a HELOC. My plan is to use the HELOC to fund the 20% down payment for a single detached house, and get a conventional mortgage for the rest. The intent is buy and hold for cash flow, with a minimum positive cash of $300/mnth, ~12% cash-on-cash (including interest paid on the HELOC). I have spoken to two lenders who both said yes this is fine, but just to move the HELOC money into my bank account prior to asking for the mortgage. Seems pretty straight forward.

I would put the positive cash flow right back in to the HELOC in order to free up more room to buy more properties and lower the interest charged per month (i.e. pay off the debt ASAP). The HELOC would also be paid back by my employment income, likely in yearly lump sums. The long-term strategy is to keep buying properties as capital permits. They would be initially self-managed.

The specific property I'm looking for is a single family home with unfinished basement that can be converted to an additional unit (duplex/secondary suite) in an A or B neighbourhood. The numbers on the additional unit look amazing and I am tempted to buy a single family home at less cash flow in order to get the duplex going. We don't feel comfortable investing in the C neighbourhoods in our area just yet, but understandably deals are harder to come by.

I see this as a way to get into REI without spending any of our own money, and really only costing my time and the interest rate on the HELOC to do it.

Location is southwest Ontario, Canada.

Thanks!