60% Heloc ReRoll Strat: Is this real? Downsides?

[William Huston]

Hello All, 

Monday night i went to a RE investing meeting and one of the speakers brought up something i had never heard of before, i know a little about HELOC's, just never used one before... but this idea he brought up just seemed way to good to work.. He brought up a 60% Heloc Strat....

Example given:

$100,000 3/2/1 SFH

$1,000/ Month Rent Rate

30yr Mortgage 5.0%

Option 1: 20% down

20% down 20k, Mortgage payment of $430/month+$245/month expenses, cash flow $325/month ($3,900yr) + est $1200 in equity payed down... for a gain of $5100yr

Option 2: 60% down

60% down 60K, Mortgage payment of $215/month+245/month expenses, cash flow $540/month ($6,480yr)+ est $480 in equity payed down.. for a gain of $6960yr

Option 3: Heloc 60% strat

60% down 60k, Pay Mortgage payment of 215/month first 3 months, then apply for a 15yr HELOC ~5% for the 40k remaining of loan. Pay off the Mortgage and pay off the Heloc with the Rent ($1000) - Expenses ($245), which with simple interest payments comes out to 4 yrs 6 months to have the house free and clear, plus you pay a micro fraction in interest over the less than 5 years.

Then part 2 of his strat for advanced investing he called it, he said the typical lifespan of a rental is 7yrs between light rehabs, since you payed it off before the 7yr mark and it appreciated about 10% conservatively, you sell it, and do a 1031 exchange and roll the 100-120k profit into a house that the 60% down payment is within that last rentals sell profit or buy multiples and run the Heloc strat again. 

House 1: 100k, 60k down sell for 120k in 5yrs

House 2+3: 100k, 60k down, 100k, 60k down sell for 240k in 5yrs 

House 4+5+6+7: 100k, 60k down,100k, 60k down,100k, 60k down,100k, 60k down, sell for 480k in 5yrs

House 8+9+10+11+12+13+14+15: 100k, 60k down,100k, 60k down,100k, 60k down,100k, 60k down100k, 60k down,100k, 60k down,100k, 60k down,100k, 60k down, sell for 960k in 5yrs or live off cash flow for rest of life....

So in 20 years you took 60k and turned it into 960k, earning 45k/yr CoC or 75% ROI