HELOC use help! What is the best use?

Question

I need some help on what to do with using a HELOC. I am selling my 1st rental property and made over 300k on the house. We have decided to buy a bigger house in the same neighborhood I live in now, put 200k down on that. My dad offered me to assume(loan company said I can) his loan on his rental property that he does not want to landlord anymore. I'm going to give him 100k on the side. With me assuming the loan it is cash flowing $900 per month. That house will have 150k equity. Then the house I'm moving out of now I will rent out. Renting for my mortgage $$

Here's the question. I plan on taking a HELOC on the new house I put 200k down on and the house I got from my dad. So how would I deploy that money to scale my portfolio to 5,10,15 properties?

a few ideas. 1. Use it for a BRRR. I've never done one.

2. Use to put the $ down to buy another long term rental. Just the cash flowing to pay back the HELOC. (Worried $ will be tied up to long)

What's the best use of this?!

Drew Sygit · Answer

@Marc Young

1) How are you going to cover potential future losses from maintenance, etc. when you rent out your current house?

2) Have you checked on the interest rates and Total Loan To Value (TLTV) limits for a primary residence and rental?

3) As others have stated, HELOC funds should be used for short-term acquistion & rehab funding, before selling or refinancing to a long-term loan.

Chris Seveney · Answer

My 2 cents for using a HELOC:

1. Never use it for long term borrowing - the interest rate will be high and it will be essentially 100% financing and you will not cash flow.

2. Use it for fix and flip project if its less than a hard money lender.

3. Have it available for a rainy day fund.

Travis Biziorek · Answer

Hey Marc,

HELOCs are best used for value-add strategies like BRRRRs or flips—situations where you expect to get most or all of the cash back relatively quickly. Using a HELOC as the down payment on a traditional rental just leaves you 100% leveraged and carrying a second payment with no clear path to recoup the cash. In most cases, your HELOC interest payment will eat up the entire cash flow (or more).

I used my HELOC pretty aggressively to build my Detroit portfolio—12 doors, all BRRRRs. Once stabilized, I had very little left in the deals, and the cash flow paid down the HELOC balance within about a year after I stopped buying.

So, in short: if you’re going to use a HELOC, make sure it’s for something that gets your money back out (or at least most of it). Otherwise, it can become a long-term weight on your portfolio.

Hope that helps.

Marc Young · Answer

Awesome information. I really appreciate your insight. I’m thinking doing a BRRR after reading through this. Who should like be looking to get on my team or how can I figure out the ARV?

David Atis · Answer

1. BRRRR Method

Using the HELOC to fund the purchase and rehab of a BRRRR deal can be a great way to recycle your capital and grow quickly. The key is buying under market value and ensuring the ARV supports a cashout refinance to pay back the HELOC. This strategy is higher risk but offers significant upside when executed properly.

2. Leverage for Down Payments

Using the HELOC for 20-25% down on additional rental properties allows you to acquire multiple assets while keeping bank financing in place. The cash flow from these properties should at least cover the HELOC payments, ensuring your capital remains productive. The challenge here is making sure you don’t overextend and that you maintain positive cash flow.

3. Short Term Strategy - Fix & Flip

If you’re concerned about tying up the HELOC for too long, consider using it to acquire and renovate properties for flipping. You can then use the profits to reinvest into long-term holds or pay down the HELOC to free up capital for your next move.

Considerations:

Make sure to keep your debt service manageable, some HELOCs have variable rates, so if the one you get is not a fixed rate HELOC, ensure your cash flow can handle fluctuations.

Run the numbers on each strategy before deploying funds to confirm that the returns justify the risk.

Diversification may be good to utilize in your purchases. Perhaps a mix of BRRRR and down payments on traditional rentals so you’re not overly reliant on one strategy, depleting the funds in your HELOC to only purchase rentals.

Since this is your first BRRRR, it may be worth starting with a smaller deal to get comfortable with the process before going all in.

HELOC use help! What is the best use?

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