HELOC As Down Payment For Rentals

[Nick Kelly]

Hi Everyone!

I just refinanced my duplex (owner opp) from an FHA to conventional to take advantage of lower interest rates and get rid of PMI. My goal is to acquire 1-2 residential multi family this year. Im considering using a HELOC on my duplex as funds to acquire next investments. Has anyone had experience using HELOC for a down payment? My concern is the cash flow from the investment would need to be directed to the HELOC payments. So no cash flow for some time (10+ years) and the HELOC is tied up so I can't re-use. What am I missing and/ or better strategies?

[Jody Sperling]

I use a HELOC for all my payments, and you can too.

You mention that the HELOC is tied up and I think you mean you would max it out to make the downpayment. But, if you then turn around and push all of your earnings into the HELOC, you'll reduce the debt quickly and have room to use it.

To make sense of what I'm saying, here's how we do it. I own two rental properties. The only debt I have on the one rental property is a HELOC. The available funds in the HELOC are 90k. I push my W-2 paycheck, my rent checks, and any investment earnings into the HELOC each week. That means I'm reducing the amount owed on the HELOC and the interest paid significantly, and swiftly.

I live off of credit cards for the whole month, taking advantage of OPM, interest-free. On the due date, I pay the statement balance of the credit cards from my HELOC. For my family of 5, my monthly budget never exceeds 5k, but my monthly income is greater than 5k, so I'm constantly paying down my HELOC. The only payment I don't pay on credit cards, besides other credit cards, is my mortgage on my primary. Everything else flows through the HELOC and I save/earn 8% on all my money by doing it this way.

So, yes. Use your HELOC to buy investment properties. It's far cheaper than amortized debt even at a higher percentage. Best of luck to you!