What's your HELOC payoff strategy?

[Jordan Stallard]

Hi everyone!

I am new to the BP community but was hoping someone could try to walk me through a couple of things in regards to a HELOC.

I recently was approved for 40k on a HELOC for my primary residence. I was wanting to use this money as a down payment on a purchase and hold property with the intention to rent it out.

Here's the question: Once I use that HELOC as a down-payment, what would be the ideal way of paying back the HELOC? I have seen people recommend only using what you can afford to pay back in a year in case of a 2008 mishap again. Others simply put their cash flow from the rental into the HELOC loan to pay it off slowly with nothing out of pocket.

Is it better to just use a small amount of the HELOC and pay it back as quick as possible? In this case, I would be sacrificing most of the cash flow from the property plus some of my own income to pay off the loan as fast as possible. To me it seems like dragging out the HELOC over time and letting the tenant cover the cost would allow me to save more liquid money for the next purchase, but the risk of a recession makes me wonder if this is worth doing?

In my situation, I don't have enough liquid money for a down payment. I could also just continue to save more money and not use the HELOC at all to purchase a property down the road. However, this feels like I'm wasting time and not utilizing my equity correctly. I would be putting myself back a minimum 6 months to get started investing if I go this route.

I am aware of the BRRR strategy but this is not something I am interested in. I simply am hoping for some insight into either using less of the HELOC to pay it off quickly, use more of it and let the tenant cover the costs of the loan, or just steer clear of it altogether since I am looking at buying and holding the property!

Thank you all so much in advance for any help you can give this newbie!

[Edward B.]

@Jordan Stallard, a HELOC is revolving credit and I believe in revolving it. The power is being able to use it over and over again without having to go "mother may I" to the bank each time. Too bad you aren't on board with BRRRR because the HELOC is ideally suited to it.

Regardless, I would point this out. The only difference between paying the HELOC down and saving the money for another down payment is the interest you pay on the HELOC and the interest you earn on your savings because either source can be used for another down payment. So if your savings are earning .85% and your HELOC is costing you 3.25% then pay down the HELOC. If the numbers are reversed, well you are probably investing your savings too aggressively, but then save the money.