Best Way to Leverage A HELOC

[Matthew Swearingen]

I have access to a HELOC of about $100k. Do I pay all cash or put 20-30% down? What is the best way to use it? I will have the payment of the HELOC and the mortgage if its not paid in cash. Any areas I should be looking at as far as a rate of return of at least 10%? Im looking in Columbus, Chattanooga, Wisconsin, parts of Texas?

[Andrew Kougl]

Let me be the contrarion of the group. LEVERAGE is the most powerful aspect of real estate. To not use it would be a shame as it greatly accelerates your ability to grow and scale.

What other investment can you say, "I want to own this (property), but I want you to pay for almost all of it (bank), and the resulting mortgage, I want you to pay for it (tenant). But all the cash flow, depreciation and tax benefits, equity pay down, oh, I want all that."

HELOC's are great but they are variable interest rates, and unless you refinance, like you would with a BRRRR, things could eventually turn and be much higher than you originally anticipated. Interest is so low right now, lock in a great rate for a longer term. If you are comfortable with a BRRRR, and have a cushion for reserves so that you are all in 85k, and the ARV is calculated properly then go for it. Otherwise I'd recommend using leverage, putting 15-20% down and paying down the HELOC with cash flow and your monthly investable income then repeating. I would go 1 at a time until you've done a couple, then 2 at a time, don't take out more then 40k at a time total, so you have reserves, the monthly payment is manageable and you aren't having a detrimental impact on your DTI, affecting your ability to jump on the next great deal.