Cash or HELOC?

Question

Hi all. Question for you as I am not sure what makes the most sense.

In a blessed situation to have been able to save up some cash reserves and have a HELOC that is interest only for 10 years. Rate on the HELOC is variable from 1.99-18%, but, I can lock any "draw" at the current rate, which currently is around 8%. Given how affordable this money is, with the goal being to have 10-20 properties (depending on cash flow), does it make more sense to use cash to fund a couple deals or HELOC? I would be doing 20-25% down and then a conventional loan.

Thank you for any feedback!

Jesse L. Weaver · Answer

Hello Amanda,

No one likes paying interest if they don't have to! As long as you are keeping enough in reserves, use the cash and put that 8% in your pocket. Or towards the next deal.

Steve Vaughan · Answer

To borrow at 8% you better get huge equity capture on your buy. At least 12%.

My heloc is fixed at 4.3% until May '24 (3yrs)  and I'm still not in a rush to force a deal.

Focus on buying below market value and it won't really matter.   You could pay off the heloc if the interest is too much.

John McKee · Answer

I still wouldn't lock in that rate as it is too high.  Once you lock you never have access to that portion of you equity again that you locked.  Shop around as I'm seeing rates at 6% from my banker on 25% down.

Amanda Chandler · Answer

Yeah, I am thinking the HELOC gives me more leverage. Where it's at now at 8% if I lock in, every 10K is approximately $65 per month.

Steven Foster Wilson · Answer

Another idea is what if you try to use a private investor so you do not have to use any of your own money. The more time that goes on the more I am realizing the benefits of doing that. Ask those around you to see if they would be willing to invest and give them the 8% once you refinance or sell the property.  I was able to buy 10 properties not using a single penny of my own money. I know that does not answer your question so I would maybe use the HELOC if I could lock in that rate and make sure it was not going to fluctuate. But I would first choose to go the private investor route and then use my money.

Andrew Adame · Answer

Amanda,

Who did you use for your HELOC?

Bud Gaffney · Answer

@Amanda Chandler HELOC all day…OPM :)

Amanda Chandler · Answer

I believe the variable rate is a little over 8%. Let's say I do lock, I would only be locking in for that percentage of the HELOC I borrowed, not the whole thing. Only that "draw" in other words. Hope that makes more sense. I would never be locking in the whole HELOC in at 8%!

Rob Jacobs · Answer

Robert Kiyosaki would probably tell you to always use other people's money for your investments and keep your cash for yourself as long as the profit margin makes sense.

Cash or HELOC?

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