Is using a heloc, for down payment of rental propert

[Brian Plajer]

Hello everyone,

I just found the bigger pockets podcast and joined. I’ve  been loving the content. I have been using a Heloc to purchase a few properties because I don’t have a load of cash. I understand the numbers will sort of dictate the answer and in general is a heloc a good method to finance down payments for properties? Thanks, Brian

[Joe Splitrock]

Using a HELOC, you can potentially buy a property without any of your own cash into the deal. I purchased a short term rental using a HELOC as a cash purchase. After paying the HELOC and other expenses, we are netting around $500 a month. That is with $0 invested, so there isn't even a way to calculate ROI. I am applying the cash flow to principal pay down on the property, so we are gaining equity.

Just be aware that when you are using a HELOC to finance a down payment or an entire property, you have no equity in the property. There could be risk if the property value dropped and you needed to sell. In a quickly appreciating market, this is not an issue, but every market is different and the future is unknown.

Bottom line, make sure the property has enough cash flow to cover debt service (loan payment) and all expenses. When I say all expenses, don't forget to include allocations for vacancy and repairs.