HELOC Free & Clear Investment - Sanity Check

[Alex Diaz]

I'm looking to wrap my head around a scenario with the ultimate goal to build up my long-term buy/hold portfolio by taking advantage of a free and clear rental property. I value long-term appreciation over monthly cash-flow at this point. My intent is to take the proceeds of the sale/HELOC to purchase additional fully renovated homes worth 145k-160k with a downpayment/closing of 35k each (20% down). For this scenario, lets assume the new properties would be turn-key rentals and would cash flow approximately $250/mo after all expense/vacancies/repairs/management/etc.

It seems to me that keeping the home and doing a HELOC is the best scenario to balance monthly rental income and leverage. Just looking for a sanity check please.

Current Property Details:

Monthly rent of subject property: $825.

As-is value = 75k

ARV = 125k (Require $30k rehab to get it to retail buyer specifications)

Rent after repairs = $950.

 Scenario 1 - Sell as-is with realtor with net to me of approximately 70k. Would be able to then purchase 2 rental properties w/ monthly cash flow of $500 with 300k worth of real estate

Scenario 2 - Rehab property and sell. Net profit of ~86k. 125k (sale) - 9k (closing) - 30k (repairs). I'd make up the difference to be able to purchase 3 rental properties w/ monthly cash flow of 750 with 450k worth of real estate.

Scenario 3 -  Rehab property for 30k and increase rent to $950/mo with 125k worth of real estate

Scenario 4 - Complete rehab for 30k. The rehab funds are available without me having to borrow anything, but to compare apples to apples we can say this will come from 0% interest credit card at 18 months that I'm paying around $1600/mo to pay off before interest is due. With an 80% HELOC I net 70k. 100k (HELOC) - 30K (rehab). Use 100K HELOC + 5k to purchase 3 new properties with monthly cash flow of 750 + cash flow 500 on current property during interest only term and 300 cash flow down the road. Leverage 575k worth of real estate. I understand my net cash flow would effectively be (-) $350 for 18 months in this scenario.

Bearing in mind that this is napkin math at this time, is there anything I'm missing that would eliminate a HELOC not being the best overall approach for me?

Thanks.