contemplating a HELOC

[Angel Rivera]

I've got one rental with 75k in equity. I've been been cash flowing $500 a month on it for the last 2 years. It was my first home. I'm thinking of taking out a HELOC on it as a buffer and renting out the house I'm in now. Has anyone done this before and would you recommend it? Any advice would be appreciated. I'm in Savannah Georgia.

[Ray Johnson]

@Angel Rivera The "Buffer" you speak of should already be a part of your cash flow calculation. If you have $500 per month in cash flow, that is your Net number that includes money set-aside for repairs, large Capital expenditures like HVAC, Water Heater, etc...

If you're doing your calculations correctly, you shouldn't be worried about an additional "buffer" of funds to cover unexpected cost because those items are covered in your reserved prior to claiming the $500 in cash flow.

In regards to your current place showing $300-$400 per month if rented out, Find out which one it is, you have a $100 per month spread in that projection, Is it $300 or $400 a month in rent?

The next thing is you'll want to see what the property cash flow will look like after you factor in the HELOC. Currently if you cash flow $350 per month and you factor in your HELOC when fully accessed and funded will cost you $400 per month, then the answer is no it's probably not a good deal unless you're willing to go negative on the property every month in hopes of acquiring another property with more cash flow to make up for the negative on the current property. I don't do this but I have seen people that will take less or lose cash flow on one property while making a lot on another property, this typically takes place in areas where equity builds quicker in place like Southern California.