I'm about to get a $100,000 HELOC. Now what?

Question

Hey all. I'm a long time BP podcast listener, but this is my first time posting in the forum.

Anyway, I'm set to close on a $100K HELOC within the next couple weeks. I'm interested in hearing some seasoned veterans' opinions on how best to spend this money in real estate investing to maximize my returns.

A few pertinent notes:

1)  At least $25K will go toward a new roof and a well, both of which we desperately need.

2) I'd like to leave $20-25K untouched so I can pull from it in emergencies.

3) The other $50-55K is basically free game.

4) I have an unfinished basement which I could finish and rent out. There's already one bedroom with a bathroom down there that we rent on AirBnB.

5) We also have a 200-square foot lofted cabin on our property (we have 16 acres) that we could install plumbing and electric in.

6) I'm interested in purchasing one or two long term rentals (preferably duplexes) that would cash flow 300-400 per month. I've run the numbers on several places that would meet that criteria. I'm open to ideas about this, though. My only stipulation (other than $300-400 monthly cash flow) is that the property is within an eight-hour drive of my home, which is just west of Asheville.

So what do you think. Any ideas? Happy to be entering into the BP online community.

Steven Foster Wilson · Answer

I am currently on my 9th BRRRR. I fix them up some a full gut and some just a cosmetic lift. Then I cash-out refinance and put the money into another property. I am not worried about trying to pay off my property because the tenant will do that with the rent money. I think you have to decide what your goals are and how can you get there. I always like to write things out. Every Sunday my wife and I will sit down and write out our goals and how we are going to do that this week. We have our big goal but to achieve that there is a lot of small ones along the way.

Jason Wray · Answer

Mike,

If you are going to be buying a multi-family and rentals in general make sure you have at least (6) months PITI reserves outside of that HELOC.  You cannot use a HELOC as a liquid reserve and PITI reserves are required when you buy a rental and on multi-family homes.  You want to have a buffer basically in another account to show (6) months PITI principal, interest, taxes and insurance - total monly payments in a savings or "other" account.  You cannot use a HELOC because it is a debt obligation and looked at as a open end mortgage and "Not an Asset".

You may want to time the purchase (3) months after you get the HELOC so that you can withdraw enough funds to put into savings.  Banks require (2) months bank statements so you do not want that 'Large Lump Sum" of money having to be sourced and seasoned to the HELOC.  Get it into an account 3 months prior so the two months show no large deposits.

Harrison Chow · Answer

@Mike, that's an awesome goal! you should definitely look into the Columbus or Cincinnati Market. You can find deals like that for sure.

Shiela R. · Answer

@Steven Wilson, I'm not invested in the Columbus market but have a good friend who is a successful investor, agent and GC there.  He's keeping me updated on what is what.  So I might..tbd;)

Steven Foster Wilson · Answer

If you buy another property then you have the potential to get cashflow and if you buy into equity eventually refinance. Through this, you would be able to then buy another property and keep the ball rolling or then use that money to refinish the cabin/basement but still have cash flow.

Steven Foster Wilson · Answer

That is a great goal. My wife just quit her job of 9 years this year. Real Estate is definitely a great way to achieve financial freedom. I say stick with what you are good at and know you can do it.

Shiela R. · Answer

Okay, @Mike Schoeffel that is fair.  Good to be honest about our strengths and weaknesses;) I would not recommend BRRRR unless you have construction experience AND are buying in a stable market AND that you get a discount. Given this, I don't know how turn key MFs would be.  From what I've seen 4-plexes provide more cashflow, typically. But then again, I have a friend killing it with duplexes (both LTR and STR) in Columbus, OH.  He's an agent and I taught him everything I know if you are interested in his info, just DM me.

Mike Schoeffel · Answer

Definitely an option.

We could feasibly rent out the finished basement for around $1000 per month, if not a bit more. Though it may be hard to find a tenant because we're a little further out in the country.

The finished cabin we'd probably keep as an AirBnB, as we've been able to rent it out steadily even without plumbing and electricity.

I'd hope to have a little HELOC left over after finishing both spaces for a down payment on a rental. I also have about $15K set aside to fund a down payment.

Mike D'Arrigo · Answer

@Mike Schoeffel finishing out the basement seems tempting because it can be done relatively cheaply but it wouldn't be my choice. Here's why. A big part of real estate returns come from appreciation. You're already getting the benefits of appreciation from your primary home. Finishing out the basement will give you some forced equity but it's not going to give continous equity growth each year. As an alternative, if you take the $50K you have avaiable, you're not getting the benefit of appreciation on both homes. You have enough cash where you can probably do a STR which can maximize your rental income and equity.

I'm about to get a $100,000 HELOC. Now what?

Most Popular Reply