Keeping the primary residence low LTV w/ a $0 balance HELOC.

[Chris Mason]

Something that's kind of been tickling the back of my brain for a while.

Two common themes of BP, and REI in general:

1) "You make money when you BUY real estate, not when you sell. Whatever money you 'earn' when you sell, you actually made that money by buying well." (With caveats about not over-improving, etc)

2) "How do I get another mortgage and/or how do I max out the LTV during a cash out refi?" Folks want to be as leveraged as possible.

I think these things are directly at odds with each other, or at least they are the way we see them implemented. 

The consensus wisdom seems to be that the best buys are often the all cash buys (court house steps, sellers that want to sell ASAP, etc), meaning you need to have a way to get that $250k liquid overnight. And you don't just want to borrow $250k months or years in advance, and pay interest on it that whole time, because there's also the possibility that this killer deal does NOT materialize, and then you've been paying interest on $250k for no reason.

So, a strategy that occurs to me:

- Keep the primary residence mortgage free and/or pay the mortgage down aggressively and/or make appropriate improvements so the LTV is as low as possible, and open a HELOC with a $0 balance but as high of a limit as you can get, secured by that primary residence that is either mortgage free OR has a very low LTV (the lower you can get it, the higher that HELOC limit can be).

- Go find those cash only killer deals. Identify one that works for you.

- Draw upon that HELOC to make that all-cash offer with a super quick close. The speed at which you can come up with this money should sometimes mean your lowball offer gets accepted (or you pass and move onto the next one where it WILL result in a steep discount). In "cash or GTFO" scenarios, it's what lets you play in this arena with properties that are already heavily discounted.

- Once you take possession and make the property financeable (if needed), cash out refinance that property into a 30 year fixed, paying off the HELOC on your primary residence. Or, sell it. Either way, you've paid back that HELOC on your primary and have that capital available to you once again.

- Rinse, repeat. You've got that HELOC back down to $0 balance again (or close to it, depending on how much bang for your buck you got with the improvements on the new acquisition).

OK, but I'm not exactly Albert Einstein here. I know the mortgage part pretty damn well, but a lot of folks here have way more experience as REIs than I do. So...

- What am I missing?

- Why isn't this a commonly discussed strategy?