Using HELOC for next investment - what am I missing?

[Tom Dieringer]

I'm six rental properties into my investment portfolio and have HELOCs on two of those properties as well as my primary home. However I haven't used them yet other than briefly on a flip two years ago.

I'm embarrassed to ask this question but the hell with it, I'm pocketing my stupid ego. I read about people who purchase a property, obtained some equity, and used the HELOC on that property to buy their next. But what I never hear anyone discuss is how the payments
on the HELOC, whether interest only or principal and interest,  factor the overall cashflow and return? Everyone seems to talk about including the costs of the new mortgage, taxes, insurance, maintenance & capital reserves, and the vacancy projections when looking at realistic cashflow, which we already do for all the properties in our rental portfolio.

But we, like many, cant find properties that are making any cashflow sense right now. Possibly we could invest for appreciation only if it's close to breakeven with not too much negative cash flow and the upside appreciation is very promising. But when I add in the cost of paying on the HELOC as well, it gets even farther from penciling.

Am I missing some aspect of creative financing?   I'm up for being aggressive but not stupid.

Thanks for any thoughts.

[Patrick Roberts]

Quote from @Tom Dieringer:

I'm six rental properties into my investment portfolio and have HELOCs on two of those properties as well as my primary home. However I haven't used them yet other than briefly on a flip two years ago.

I'm embarrassed to ask this question but the hell with it, I'm pocketing my stupid ego. I read about people who purchase a property, obtained some equity, and used the HELOC on that property to buy their next. But what I never hear anyone discuss is how the payments
on the HELOC, whether interest only or principal and interest,  factor the overall cashflow and return? Everyone seems to talk about including the costs of the new mortgage, taxes, insurance, maintenance & capital reserves, and the vacancy projections when looking at realistic cashflow, which we already do for all the properties in our rental portfolio.

But we, like many, cant find properties that are making any cashflow sense right now. Possibly we could invest for appreciation only if it's close to breakeven with not too much negative cash flow and the upside appreciation is very promising. But when I add in the cost of paying on the HELOC as well, it gets even farther from penciling.

Am I missing some aspect of creative financing?   I'm up for being aggressive but not stupid.

Thanks for any thoughts.

 The general idea is to use Helocs to replicate hard money. They're revolvers - they're meant to be drawn and paid down relatively quickly to meet liquidity needs - such as making a cash acquisition or funding a rehab. You wouldn't use hard money for long term financing, and you shouldn't use a Heloc for this either. The basic idea is use the heloc to acquire and rehab the new property, then cash-out refi the new property to pay down the heloc. If the deal doesn't pencil like this, then you're taking on a heavy layer of additional risk by using the heloc for permanent financing - you basically don't have an exit. 

And you're absolutely right that most deals don't pencil out right now. Finding good yields is tough in this environment.