HELOC to purchase property - no financing

[Brian Ellis]

Have a condo deal closing in a couple weeks.

165k purchase price
25% down

$350 HOA

$27 insurance 

Rent after repairs $1750

Cash flow: $490

COC: 13


Now my question is, would you consider using an equity line of 110k, combined with cash to purchase? There is a situation where financing might fall through. The equity line payment would be pretty similar to the conventional loan, and I’m looking at a similar cashflow, but obviously my COC return is less, probably around 8-9%, AND the biggest downside is all my capital is being utilized so I can’t scale for a while.

[Scott E.]

I would use that HELOC only as a backup plan to a conventional 30 year fixed loan on this deal.

The reason is because it will be much easier to get a purchase loan on an investment property compared to a cash out refinance loan down the road in the event you want to tap into that equity (and your interest rate will be better with a purchase loan as well)

Added bonus, if you use a purchase loan now, you can use those HELOC funds for something else.