Using HELOC to purchase first investment property

[Yim Vang]

Hi everyone!

I'm new to real estate investing and just wanted to get some advice, input, and constructive criticism on using a HELOC as a down payment to purchase my first investment property. I'm currently in the process of getting approved for a $160,000 HELOC on my primary home. I plan to use this line of credit to put down 20% on a property for a DSCR loan (DTI is too high for a vacation home/investment loan), and I do have about $20,000 of reserves saved up. I plan to use this investment property as a self-managed short term rental (STR) to generate cash flow. As I am just starting up on real estate investing cash flow is my biggest focus at the time and will plan to diversify my portfolio in the future. I'm curious on how I should be using the monthly cash on cash returns. I was originally planning to put all my monthly returns to pay down the HELOC as quickly as possible so that I can get into the next property but am worried about how to deal with paying the taxes if I don't allocate any of the returns to the side. Wanting to scale quickly I've thought about doing a cash out refinance on the investment property after about a year and using that cash to pay off the HELOC then using the HELOC once again to get in the next property (rinse and repeat). However, there might be prepayment penalties when using a DSCR loan making a cash out refi not an option.

Any thoughts and/or advice on whether my strategy will work? Looking for factors I may not be considering. Is there a better approach to beginning my real estate investing career and scaling quickly? Any feedback will be greatly appreciated! Thanks in advance!