Using HELOC to buy-and-hold, how do you pay it back?

[Will Porter]

I'm curious if it makes sense to use a home equity line of credit (HELOC) to fund the down payment & rehab on a buy-and-hold rent property, but I'm not sure what the exit strategy would be. If you just pay back the HELOC over time, it would be like having two mortgage payments (1--the mortgage on the new property and 2--the HELOC) and that would probably kill cash flow. So we probably want to see a different exit...

Can you do a cash-out refi or something else to pull out a lump sum to pay off the HELOC?

Here's an example of what I mean:

1. Obtain HELOC on Primary Residence A for $50,000

2. Purchase Investment Property B using the $50,000 for down payment, closing costs, and rehab

3. Refinance Investment Property B within a year to get the $50,000 cash out and payoff the HELOC

4. Now I have two properties (A and B) and one new mortgage (on B) but my HELOC is recharged to do it again

Is this possible? Or are HELOCs only ideal for flips? Or is there some other way to use the HELOC for buy-and-hold rent property?

[Franklin Romine]

You can use the HELOC in any way shape or form. How you just described it is exactly what I did. Your time frame to recycle the full 50K investment is doable. You might only beable to pull out say 40K. Then you have 10K of the HELOC still tied up into Property B. The flow of capital is a roller coaster ride. Over time your helocs will get tapped out and you will then want to refinance them into portfolio loans. Robbing peter to pay paul and asking paul to lend to peter again works as long as you stay straight buying assets and buying assets that create enough flow of income to pay paul.

Frank