feedback needed - HELOC strategy

[Teo W.]

I plan on getting my first rental property soon and was wondering if my strategy on getting subsequent rental properties would work:

- Get first rental property, prep, rent out

- After a year or so depending on how things pan out with first rental property get a heloc on first rental and use it towards second then repeat first step...etc..etc

Am I on the right track?

[Jesse T.]

I think that is a decent strategy using a cash-out long-term financing vs. HELOC.

If you don't get substantial sweat equity or save up for increased money to put towards the 2nd property, then you will have to buy cheaper and cheaper properties.

If you start with a 200K property - you could buy a 150K property then a 112K property. You would end up with a total property value of 462K and a LTV of about 56% - which should be a reasonable balance. You would have mortgage payments with about $1000 a month for interest.

If you save about 20k/year you buy a 150K property in year 3.  By year 4 you should be getting some significant rental income that may mean you can save up more quickly and buy around the 150K level until you use up conventional financing opportunities.