New investor in planning stage - using equity to finance.

[Lillian Morata]

Hi BP, 

New member here just starting my journey. I'm trying to learn as much as possible and already decided my initial financing strategy for my first property will be using the equity in my personal home. My question is, if I'm using a HELOC, should I or should I not include the monthly interest on that HELOC in my analysis of the cash on cash return? And if there are any answers, can you please include why or why not? Also, are there any good recommendations on meetups in the Bay area, specifically the East Bay? Thanks a lot!

[Jeff Kelly]

On BP you can find a few good old discussions about how to beat use HELOCS and for which strategies they are a fit. If you read some of them, you'll find the explanation that using a HELOC for a downpayment on a regular buy and hold property is going to make it difficult to cash flow positively, because you have two loans you have to pay off (the mortgage and your HELOC balance). I'm sure it can work in some cases. But HELOCS seem to make most sense when used as to buy properties with cash and then refinance them (BRRRR), thus being able to pay off the HELOC relatively quickly, and not keep a balance on it for a long time, or for flipping. Again, you'd only take money out of your HELOC for a relatively short period of time if flipping.

But I think a HELOC could work for buy and hold if you're, say, using the HELOC to put a downpayment of over 20%. If you put 25% down, Your HELOC balance would be larger than if you put down 20%, but your monthly mortgage payments would be lower, improving your cash flow. I hope that helps! Make sure you search BP discussion boards for terms like BRRRR and HELOC together. Or Flip and HELOC. Or Buy and Hold and HELOC.