Best Use of Primary Home HELOC

[Matt J.]

Hello everybody. I've got a question about how to best utilize a HELOC I am taking out on my primary residence. Here are the basics around that and my current REI situation.

I will have a HELOC of around $35,000 dollars against my primary home. I currently own a triplex that has an unfinished, vacant unit that could be turned into an efficiency unit and bring in an additional $550/month in rent to my current $2200/month in rent. I currently owe $86,000 on the property and purchased it for $115,000. In October, I plan to refinance the property, either way, to get my money back out to use towards another property (will have hit 6 months seasoning period by then).

My question is this: should I use my HELOC to complete the 4th unit on my triplex (project quoted at $22,000), or should I use it for a down payment on another property, potentially a duplex?

If it helps, I'm in the  Duluth, Minnesota market and could probably find a duplex for $80,000-$90,000 dollars. I also think with a 4th unit finished in my current property, I could probably get it to appraise for around $125,000 - $135,000. 

Thanks in advance!

[Joshua Fulenwider]

The way I see it, if you can use the HELOC funds to finish unit #4 and then refinance to pay back the HELOC you can then use the funds again as down payment on another property. If you just use it as down payment you are restricting your ability to finish out the 4th unit.

If you can not refinance and get all or most of your cash back following the completion of the 4th unit then I think I would pursue another property.  In this scenario you can complete the 4th unit at a later date when the property would warrant a cash out refinance following the 4th unit's completion.

Hope this makes sense.