HELOC to Flip to Buy and Hold

[Steve Cady]

I am finally getting over my analysis paralysis and ready to start my journey. Ultimately, my goal is to build up a portfolio of buy and holds to generate enough cash flow to live on but as long as I’m working, I don’t need any cash flow right now. I wanted to get people’s opinion on my strategy on how I am planning on doing it.

I am in the process of getting a HELOC on my primary residence. My plan is to use that money to purchase a fix and flip for "cash". Initially, I will only look at properties where the HELOC is enough to cover 100% of the purchase, repair, holding costs, etc. Once that is property is finished and sold, I plan on paying off the HELOC, saving 100% of the profit on that sale and repeating the process until I have enough saved to purchase a buy and hold rental property. My hope is to keep that process going (HELOC for flips, profits for buy and holds) until I have enough rentals cash flowing to replace my current income. At some point depending on how things go, I may slow down on purchasing the rentals so I can build up enough profit from my flips to support 2 or 3 flips running at the same time to get to my goal quicker. I am going to start off slow (maybe flipping 1-3 properties a year) until I get my feet wet but may increase that as I get more comfortable.

Does that sound like a realistic way to go?

Another question; since the money I plan on using to purchase the rental properties isn't technically out of my pocket but from the profit of the flips, how would that payment work toward the ROI/CoC/CapEx/IRR etc.? Would it be considered costing me zero of my own money or would I count that money as my investment portion into that property?

Thanks all!

[Clayton Plank]

@Steve Cady, that is a great idea. I did this with just buy and hold properties. I would use the HELCO to purchase a buy and hold that needed work. I would do the work and get it fixed up and then get it rented. After 6 months to a year I would refinance it and draw my HELOC money out and then start the process over. I just didn't have the time to manage fix and flips at the time. Your idea is great as you could pay cash for your rentals and them not be mortgaged like mine.