HELOC for Fix/Flip - Transfer Profit to Rental Properties

[Jeremy Wheeler]

Hello Everyone,

My wife and I are just getting started with our Rental property journey. Our offer on our first rental property was just accepted and we are closing on the property in a few weeks. The house is a turn-key rental property with very little improvements that need to be made before putting it on the market for rent.

I am working on our strategy for how we should go about funding/acquiring our next properties. We have fixed and flipped a couple of homes while living in them the required two years so that we don't have to worry about capital gains. This is what gave me the idea of flipping homes for the quick profit versus waiting for the cash flow from rentals to save up for our next down payment. My strategy is as follows: buy a fix/flip home, renovate and sell it, take the profits and do a 1031 tax exchange and use those funds to buy our next rental property to hold onto for the long term. Then go back to another fix/flip to get cash for the next rental property.

We have quite a bit of equity built up in our primary residence and I plan to use a HELOC for the construction renovations cost of the fix/flip homes. Pay off the HELOC and take the remaining profit to use as a down payment on the next rental property.

Has anyone used this strategy with success and am I overlooking any major red-flags with this strategy?

I work for a commercial general contractor as my career so I am experienced in the construction industry but not necessarily in the residential market. 

Any advice would be appreciated!