Using a HELOC to buy another investment property

[Ryan Burlison]

Hi team- 

I opened up a HELOC a few months ago and was able to grab $127K. I have two rentals at the moment, and I am trying to scale my portfolio at a rapid rate. 2 starter questions-

Q: How do I analyze the deal with knowing I will have a Heloc payment and a mortgage payment. Is their anything I need to be certain of? I also see that the repayment period, the monthly payment due on th heloc blows up. 

Q: How should I use the 127K? Put it all in on one deal? Or should I grab a smaller portion of it to get started... 

Thank you!

[Nathan Grabau]

People typically focus on using HELOC's for BRRRR deals when possible, because then you have the capacity to pay off at least part of the Heloc if you need to. I would try to find a property that can support itself and has cashflow to pay for the Heloc too.

Broadly, I think a lot of people get focused on cashflow because it is easy to track, or seems easy to track at least. That being said, people who get wealthy through real estate get wealthy through appreciation, not a couple hundred dollars a month. On the flip side, cashflow is a great long term "defensive" metric, because cashflow allows you to keep paying your bills. That being said, cash is the true first line of defense. If you have an HVAC go out, you are not going to care about the difference between $125 and $175 of cashflow. 

I would think through the 127k as cash that you have. If getting two properties has the ability to make you more money than one I would do that, but I would just think about it as the money that it is. 

How soon does the repayment period begin? If it is 10 years and you are scaling quickly, this shouldn't be the big of a deal, if it is sooner that story is different.