Repaying a HELOC

[David W.]

I am approaching my 1st rental property buy and of course trying to do all the homework. By the way BP.com is awesome. So rather than using my own cash or pulling money from stocks, I have been thinking about a HELOC. But when I do the math and add in the repayment of the HELOC as part of my monthly bill, my cash flow goes pretty low (around 140/month). The only way it seems worth it is to pay interest only on the HELOC, then my cash flow is around $261. But when the HELOC comes due, I would still be in the same situation. Granted, rent would go up over the course of 10 years but I imagine the interest on the HELOC would also.

So how can I repay a HELOC and not reduce my cash flow down to $140 bucks? Which seems not worth it.

[Kerry Crandell]

I just purchased my last two rental homes using my HELOC. My strategy goes like this: I make cash offers (well below asking price) with a 2 week closing- and use my HELOC money to buy the house(s). I think I got lucky, but both deals had me walking into $30-50K equity. Once I owned the property- I would rehab to increase the value (around $7000 for each place). I then did a "cash out refinance" and was able to pay off the HELOC balance (including the rehab costs) due to the new appraised value of the home after my rehab. During the 60-90 days prior to the refi...I would only pay the interest on the HELOC. It also helped that I had renters in both houses as soon as they were updated. Now I enjoy a very low fixed rate (4.675%) for the life of the loan and I'm off to find another house! Good luck...I'm VERY new to REI, but feel free to reach out if you would like more details.