Using a HELOC for Down Payment on a Duplex

[Adam Keffer]

Hi All,

I've been looking at potential investment properties, mainly duplexes, and want to use the HELOC I have set up on my current residence (owned free and clear, appraised at 165k) for the down payment. The HELOC is set up for 130k at a variable rate of 4.94%.

I am looking at a property currently on the market for $189,500. I ran the numbers through the Bigger Pockets Rental Property calculator with 20% down (using the HELOC for the DP'; paying asking price) and got a cash flow of $368 a month. Now, this obviously doesn't take into account the repayment of the HELOC for the DP, so that cash flow isn't as accurate as if I was using my own funds for the DP.

My question is, what is the best way to pay down the HELOC and still cash flow on the property? My goal is to pay off the HELOC as fast as possible, so to avoid paying lots of interest over the repayment period. If I set the repayment period to 15 years for the HELOC, I would only be breaking even for those 15 years, using the cash flow from the property to pay down the HELOC.

Should I be using more than 20% from the HELOC so that I can then refinance after the seasoned period and then draw out that equity to pay down more of the HELOC? I believe that would require me getting a 2nd mortgage on the property, which I'm unsure if the bank would lend on.

Any insights on making this strategy work? I'm really excited to get my first property under my belt, but just not sure the best way to approach this situation. I should mention that I plan on renting out the SFH (condo) I live in a year or two once we find a new primary home to live in and can use those funds as well to accelerate the pay down on the investment property and the HELOC.

Thanks!