Buy outright vs finance when HELOC is involved?

[Alex Hsu]

So I have an opportunity to purchase a deal for $65,000. I understand the idea that if you only came out of pocket with only the downpayment vs buying the property outright, the CoC is typically better even though you have a mortgage payment.

I guess where I'm a bit stumped is trying to figure out how to weigh the deal if we plan to use a HELOC for the out-of-pocket portions.

So 20% down plus about $6k closing costs means $19,000 out of our HELOC. Cashflow would be $500 (NOI) - $280 (mortgage) - $94 (HELOC payment). Around $126.

BUT if we paid the entire thing with the HELOC, cashflow would be $500 (NOI) - $340 (HELOC payment on purchase price and a bit of closing cost). That's $160.

If I was just using cash either for the down payment or for the entire purchase price I guess its a no brainer. Financing means my same $65,000 could get me 3x as much cash flow with additional properties than using the whole bundle for one property. BUT when the funds come from a HELOC which I can quickly pay off and then get the full $500 NOI in a year or two (given other cash flow) then I'm not too clear how to calculate.

If I'm using cashflow to pay down the HELOC amount of $65,000, is that an opportunity cost on that cash? Is it still better to have 3 properties for the price of one, even if it means being locked into 3 fixed mortgages for 30 years? How do we take fluctuating rates of HELOCS into account... the thing about HELOCs is that there is risk in rates rising, but there is also more ability to affect your monthly payment and therefore increase your cashflow by paying down principal... which you can't do with a fixed mortgage.

What are your thoughts for what points to consider and what levers to pull when comparing the two options when its a HELOC you're coming to a deal with?