HELOC versus Mortgage for REI

[Pankaj Aurora]

Hello,

I have approx. $250K HELOC available (against my primary residence) that I want to use to invest in residential rental property. What is the best strategy to use this? My LLC already owns one fully-paid rental property.

Option 1 - LLC buys one more property with most of HELOC. Closing cost is lower.

Option 2 - LLC buys 3-4 properties with $50K-$75K down payment coming from the HELOC for each, and the rest from new personal mortgages. Closing cost is higher for each buy.

HELOC is tied to Prime, and the payments start much higher than mortgage, although in the log run, they go down.

If I go with Option 1 - The LLC will end up owning two fully paid properties. I can then have the LLC borrow about 80% of the combined equity of those 2 properties for a third fully paid property.

I will appreciate the forum member's feedback and input.

Thanks,

Pankaj 

[Corby Goade]

I'd suggest option #1, but there's a second step that you haven't addressed. If you get great deals on the property you buy, you do a cash out refi and pay off your heloc right after closing and continue that cycle over and over indefinitely. As long as you have access to a lender after your 10 conventional loans, the only thing limiting you is your ability to find deals.