Can you buy a performing mortgage note with a HELOC?

[Rachel May Bailey]

Question: If you can use HELOC funds to buy rentals for your business, can you buy a mortgage note the same way?

What I have heard in the networking scene: Investors are using HELOCs from their personal residence to have a down payment to buy a rental property. Examples I have heard of say they just take $30K out to buy (in whole or a down payment) for a rental OR they use for funds to flip....then they either refi that residence or sell the flip and put their funds back into the HELOC. Sounds like a cheap way to use your own equity as cash (instead of 12% and 2points with a private lender).

I am wondering about buying performing mortgage notes the same way. I often come across notes such as: $50K purchase price that's paying 10% interest. If my HELOC rate is 6%, I technically am not using any personal funds to buy and it's like I'm just using the equity in my home to earn me passive income......but is this not right? Am I way off in how this could work? Do I have to have a rental house first (under a business name) to THEN take out a HELOC on it to buy the mortgage note?

Ideas? Suggestions? Any tips appreciated.