Using HELOC to finance investments with no money down

[Jimmy H.]

I am a young guy with a bit of experience in real estate. I just inherited a home, free and clear, that is worth about $300,000. I have read many discussions of no money down transactions, I understand the pitfalls, the non sense the gurus try to sell, and I also understand that there are endless ways to try to go about achieving "$0 down" financing.

My question is about using a HELOC to finance acquisitions, particularaly acquisitions that I can acquire at a good discount to their appraisal value. My thought is that I could buy properties with cash (although I would be using a HELOC the seller would essentially be receiving a cash offer) at a discount and then refinance these properties up to about 80% LTV (whatever a bank will allow). But assuming that I buy at a good discount to fair market or appraisal values I would think I could get most of my money back out or possibly even a bit of cash back when i finance the investment property with its own mortgage. Then I could pay off the HELOC until I see another potential investment and then make another draw on my HELOC for future acquisition. This would cut down on my interest cost as opposed to intiating a first mortgage.

I have also considered just getting a first mortgage since I could get such a low fixed rate but this HELOC idea seems to me the better idea to acquire more property more quickly. I feel that I should pursue this strategy and then maybe get a fixed rate 1st mortgage sometime before rates go up just so I can lock in some cheap capital. My thought is to try to acquire multi-family assets that cash flow, finance the investment property and use the HELOC only for acquisition. I am thinking of investing primarily for cash flow not appreciation.

I would love to hear thoughts, opinions, suggestions, and have someone play a little devils advocate. I understand this strategy may not be as common because starting out with such a large amount of equity is not always common.

PS I am located in Lexington, KY and am looking at investment both in Lexington and surrounding cities of Georgetown, Nicholasville, Richmond, as well as the greater Cincinnati area.