Home Equity Line of Credit (HELOC)?

[David White]

I'm still relatively new to the real estate game (2 rentals owned in just under 6 months of investing) and have been coming across different strategies to buy properties. One of these strategies is called the HELOC method. Where investors essentially use the home equity line of credit from the bank to either invest in other properties or pay off their current mortgages.

What is the downfall of this? I’m still learning and am looking to understand both the pros and cons ...

[Todd Powell]

@David White This is exactly how I built my RE portfolios as well as flipped houses. I started with a $60k HELOC back in 2001. I then pushed, and pushed my HELOC limit up to $305,000 with Bank of America. Recycled the same money over and over and built some profits after flips enough for down payments and some buy and holds. I even used HELOCS on non owner occupied triplexes, again with Bank of America, until 2009 hit and then B of A shut down my non owner occupied lines, and only let me keep my primary residence line of credit. The down side is HELOCS can be called due at ANY time. This has NOT happened to me but I have heard of this. Today, I have a $421,000 HELOC on my primary with Keybank, 90% LTV, 15 year draw period, and a interest only rate of prime minus .25% with a floor of 3.99%. In the end, I made fortunes using my same home equity, both for down payments as well as rehab costs. I love this method of leverage, but some would call this "risky." I found that banks do not want to lend, except with solid collateral so this is my preferred method to access money. Today, successful and diligent work using my HELOC has helped me flip countless properties, as well as ownership, and/or manage 96 units.