When using HELOC how do you calculate ROI?

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Dear BPers:

Happy New Year!

I learn a LOT from these forums. Thank you for sharing!

This question is about long term investment.

If you have $100,000 cash. You can use that money to do 3 things:

• Option 1 - Buy a $100,000 investment property with entire cash. Leverage = 0%.
• Option 2 - Buy a $200,000 investment property with the $100,000 cash and use an investment property financing method to borrow $100,000. Leverage = 50%
• Option 3 - Buy a $400,000 rental property using the $100,000 cash and use an investment property financing method to borrow $300,000. Leverage = 70%

If you have $100,000 in HELOC. You can use that money to do 3 things:

• Option 4 - Buy a $100,000 investment property with the HELOC
• Option 5 - Buy a $200,000 investment property with the $100,000 and use an investment property financing method to borrow $100,000.
• Option 6 - Buy a $400,000 investment property with the $100,000 and use an investment property financing method to borrow $300,000.

Let us assume you have 2 options with the HELOC:

Scenario A - You pay HELOC down according to schedule, because interest rate is low.

Scenario B - You pay down the HELOC ASAP (to free up capital for further leverage) - essentially making the cost of the loan in Option 5 & 6 ONLY the interest you paid for the HELOC.

Question (1)

In Scenario B, when I calculate potential ROI for Option 5 & 6, should I use the entire amount of HELOC (as I would in scenario A), or use ONLY the cost of the HELOC..which is the interest paid for the HELOC?

Question (2)

Option 6 & Scenario B seems the best to me for leverage and re-use of capital.

Please help with your insights.