HELOC to fund Down Payment

[Steve Cook]

Hi Everyone,

After diving into real estate about 6 months ago, I've successfully added 3 properties to my portfolio.  Each property is successfully cash flowing and has a 1-year lease in place.  There is no major deferred maintenance, but I do keep a separate reserve fund of $5K to account for any vacancy or maintenance.  My monthly cash flow between the three properties is just north of $1,300 with a debt coverage ratio of 2.8x.  

My question is, with my current income from my day job and cash flow from the properties, it will likely take me another six months to save up the $20 - 25K needed to acquire my next property. I was doing some research and wondering if it's possible to take out a HELOC or revolving line of credit to secure a traditional Freddy / Fannie loan? I'm very confident I can continue to find properties of similar performance and the cash flow from the acquired properties would easily cover the additional loan. $20K at 4% translates roughly to ~$58 per month.

Very interested to hear if other's have done this before and have specific insight into my target area, Indianapolis.

All the best,

Steve

[Jean Bolger]

Make sure you check the terms of the specific helocs you are looking at before you pick one.. 

Some helocs allow interest only payments. Others (like mine) require a minimum payment of 1% of the loan balance. That works OK for me because I only use it for short term situations, but in your case that would be $200 instead of $58. Also, if you're going to use the heloc for a long term loan make sure you know how much the rate can adjust and run some worst case scenario projections. Maybe a straight home equity loan would be a better option in your situation?