HELCO scenario

[Lee Ancona]

Hello guys/gals,

I have been browsing through bigger pockets for some time now and finally ready to post some questions and comments. First off let me explain who I am and where I come from. I am currently active duty military actually forward deployed in support of OEF. I am from Southern California and own a couple of rental properties near the base in Southern California as well as one in Phoenix, AZ. I am 27 years old and expecting my first child at the beginning of November. I want to provide a life of financial independence for my family and not have to worry about money. I have owned the aforementioned properties for about 5 years now and have built some equity in them. Ok enough about me and here are my questions(s).

Property 1 in phoenix, AZ original purchase price 120,000 in 2009 at 5.5%, I refinanced last year and current balance with the refinance cost into it is 115,000 and interest down to 3.25%. Monthly mortgage with insurance and property taxes included is $750 a month with $46 HOA fees on top. House was appraised at $188,000 this year. This is also a VA loan. Rental situation is I pay a property management company to manage the property and they just signed a new tenant to a 2 year lease (that's great J) at $950 rent. Property management takes up 75$ a month for management fees. So in the end the numbers aren't the greatest at $950 (rent income)-$750 (mortgage, insurance, property tax)-$46 (HOA Fees)-$65 (landscaping fee)-$75(property management fees) = +$14 a month.

Property 2 in Southern California was purchased for 75,000 in 2009 at 4.25%. I utilized the conventional loan and put down 15,000 and current balance is 55,000. Monthly mortgage with insurance and property taxes included is $450 a month. Property 2 was appraised at $85,000 this year. I have tenants in the property and current rental income is $770 a month and property management takes $70 a month. Numbers are $770 (rental income)-$450 (mortgage, insurance, property tax)-$70 (property management fees) = +250 a month.

There was the breakdown of the properties so there isn’t any confusion, sorry if I put too much or confused anyone.

My question is regarding HELOC. Here is my thought and some numbers, please advise and tell me if I am missing something or this plan looks solid.

I was thinking about taking out a HELOC on property 1 and paying off property 2 completely. This would leave property 2 with no balance minus this HELOC monthly costs. However, here are the numbers as I see it. Property 2 has 26 years left until the current loan matures, which will incur a total cost of $145,000 dollars total and $70,000 in interest. Current rental rate is between $750-$800/month minus the property management fees and that's $770-$70=$700/month profit 100% after I use the HELOC to pay off property 2. That's $700/month x 12 months is $8400/year. If I go further and break that down to the current length of the loan that's $8400/year x 26 years left, which is $218,400 (all profit opposed to interest to the bank and or original loan).

I understand I still have to pay the HELOC of $50,000 from property 1 back; I would re-invest the 100% profit of $700/month from property 2 which is $8400/year. $50,000 divided by $8400 is 5.9 years. So that is 5.9 years to pay off the $50,000 opposed to 26 years and a lot more profit in the end for me opposed to anyone else. I understand there are other fees, costs, vacancies for the rentals, broken items, etc.What are your guys's opinion's regarding this scenario.

Thanks

Lee