Using a Heloc as a downpayment

[Michael Cabral]

Hi Everyone,

I'm looking to buy my first rental property and I've seen countless videos and articles about using a HELOC for a downpayment on the property. I don't have enough money for a downpayment but want to start Real Estate Investing now so I'm interested in using a HELOC

My question is:

If I take out a HELOC for a 25% downpayment of a condo here in Miami, so let's say $35,000 of a $140,000 property, how do I pay back the HELOC's monthly payments and the standard 30-year fixed rate mortgage of the rental property at the same time while making money. It seems like it would literally take years to pay back the HELOC.

I feel like I’m missing something in the strategy.

[Chris Levarek]

@Michael Cabral How you choose to use the HELOC will depend on what rate you get and the strategy you choose. I've seen fixed HELOC rates at 2.5% for first two years and others that start at 8.5% variable. So really, that will determine whether you use the HELOC for short term use (flip, brrrr, etc) or long term (past one year). As most HELOCS end up being variable at some point anyway, it would be good to be cognizant of your strategy timelines and how that HELOC rate will play into your costs. 

We choose to use our HELOCs as short term financing or credit reserves for quick usage and partner with hard money or private lenders for the majority of the financing up front. We then refinance out after value has been added and pay out the original capital financing(private lender, hml, heloc, etc). Or the HELOC funds could even be used as payments to a private lender or hard money lender who finances the 80-90% of the property purchase. Again, it really is about buying the right property that allows you to add value and refinance out at some point to pay back original capital providers.

Good numbers and buying right will make the above options work. Hope that helps!