HELOC and Turnkey Investing Advice

[Allen Tracy]

I'm a real estate investment newbie living in Los Angeles. I currently rent my primary residence to film crews which pretty much covers my mortgage. I've paid off about 50% of my home and have around $400k in equity. It would take me a year or two get the cash needed to invest so I wanted to see how everyone felt about using a HELOC for a downpayment/rehab costs on my first investment property?

I'm thinking about investing in the central valley of California mainly because my family has farmland outside of Bakersfield and commercial properties on the coast but I think my money would do better out of state.  My Dad is partnered in a business outside of Amarillo, TX that he flies out to often so that area is also an option.  Went to a land auction with him which was really interesting.

Also, how do people feel about turnkey investment companies?  Obviously you only get as much money as the work you're willing to put into a deal so I wouldn't be making as much as if I did the deal myself.  Maybe breaking even but building equity?  Is it just something to stay away from?  I mainly ask since I work a busy job, deal with hosting the filmings, and have a newborn.

Thanks, Allen

[Amber Smith]

Hi @Allen Tracy,

You & I have a LOT in common! I used a heloc to buy my first rental/ investment property & my dad lives in Amarillo, TX & we bought & sold a 2 unit property there about 4 years ago. 
My 1st question would be do you plan on buying a flip or a buy & hold rental? Bc your answer will determine if a Heloc will work for you. 
If you’re considering a heloc to use for a flip, go for it, all day long. If you stick to a budget and time frame, you’ll hopefully pay off the heloc in the time it takes to purchase, rehab & sell your flip. 
On the other hand, if you’re using the heloc for a long term rental, you have to consider a few things. Will the heloc funds be used for the full purchase price or just the down payment & closing costs? If it’s the latter, you essentially have a 1st & 2nd mortgage on your rental & your rents better be pretty good to be able to cover the principal & interest on 2 loans as well as your rental expenses, repairs & vacancies. 
When I used a heloc to buy my 1st 4 plex, I had a very strict plan in place to pay off that heloc in 2.5 years. I chose to do a fixed rate rather than variable Bc I knew I would have that heloc payment for at least 2 years & didn’t want to worry about rate hikes. The property had a monthly gross cash flow (rents minus mortgage [principal, interest, prop tax & insurance]) of about $1200 & my plan was to put that entire $1200 a month toward paying down the heloc. I ended up selling my primary house a year after doing the heloc & thus paid off the heloc early & still made about 20k in profit. 
If you plan on using the heloc for a long term rental, I would recommend being highly disciplined & plan on not making a profit for as long as it takes you to pay it off. 
As for turn key, I have never used a TK Bc I do all the work and management on my properties myself & am also a control freak lol...but I’ve learned a TON & know what to look for in flips or rentals, what to avoid, what to spend money on & what not to, etc. It’s hard to learn those things using a TKP, esp on your 1st prop. Also, I’ve heard a lot of horror stories on BP about TKP, just do a search & youll find them. 
I would recommend sticking within a 2 hour radius, starting with a small multi unit, 2 to 4 units, & getting your hands dirty with repairs & prop management if possible. 

Good luck!