Investing with a Heloc on a primary residence

[Dennis Byrne]

New guy here looking for advice on investing using a Heloc.. I apologize up front for being so wordy, but it's the only way I could get all my questions/concerns out...

I currently own 2 investment properties and I'm looking to add to my portfolio using the equity in my primary residence.

I was able to get a Heloc for 3.18% variable rate with a 10 year draw period and up to a 30 year payoff period.

With the funds I have available, a couple of my options are:

1. buying a duplex for "cash" that would use up about half my Heloc ,and then doing a cash out refi on the new duplex to use as a down payment towards the purchase of another duplex.

2. use all of my Heloc as a down payment to purchase a much larger multifamily.

If I do option 1, I know I could cash flow and pay off the Heloc in 15 years or less. If I do option 2, in order to cash flow I would need 30 years to pay off the Heloc.

My concerns/questions are:

1. Is it better to payoff a Heloc quicker than a conventional loan because it's on my primary home? I have no intention of moving anytime soon, but I'm 46 and I don't believe I'll be in this house until I'm 76....

2. Is there a negative side to maxing out a Heloc? I do have cash reserves, so I don't need a ton of credit available for emergencies.

3. Any other advice/concerns that you may have are welcome! Thanks!

[John Warren]

@Dennis Byrne first of all, the HELOC strategy is great. I am currently in process of paying off my HELOC after buying a six unit in Cicero, IL last year. If you have other small multifamily properties in the area, then I personally love the idea of picking up duplexes, triplexes or quads for cash and then refinancing them to pay back the HELOC. The beautify of this is the simplicity. If you have an awesome lender for 1-4 units then you can refinance after 6 months and pay back the HELOC. If you go with a commercial deal, then you won't be able to refinance quite as easily as the local banks are much more conservative.

As for paying back your HELOC there aren't many risks to having the balance out there. I guess it could ding your credit a bit if you have a lot of debt like that on a credit line (It hasn't for me though). If you sell the house you can always just pay the thing off through the sale, so there isn't much risk there either.

As long as you can service the I/O payment on the HELOC, this is a great strategy.