Financing my first deal - HELOC & Cash

[Curtis Brown]

I'm just starting out in my real estate investor journey and have been learning all I can from various books, podcasts, and people. My wife and I have a 30-year fixed-rate (2.87%) VA mortgage with about $80k in equity. We recently applied for a HELOC and, if approved, will have an $80K line of credit. The processing time for our HELOC is going to be about 90-days and the lender said our credit line can go up if we put more equity in our home before closing. We also have roughly $64k in cash (it's parked in a high-interest savings account). I am thinking about putting the $64k into the principle of our current mortgage to increase our HELOC to about $144k prior to closing - this would make the HELOC our only means to invest with. The appeal to this approach is we will be able to pay off our mortgage in 11 years versus 30 years and save over $30k in interest. The real estate investment method I'm leaning toward is BRRRR but I am open to finding good deals on homes that need minimal effort to become rent ready. Do you see any drawbacks to putting all of our cash into our mortgage and relying solely on our HELOC to get started in real estate investing? Thanks in advance!

[Jaysen Medhurst]

Yes, I see draw backs, @Curtis Brown. That is not a good idea. With your mortgage at such a low rate it makes no sense to pay it down faster with cash. You're basically proposing to pay down your mortgage (at 2.9%) so you can give the bank the privilege of lending that money back to you at ~6%. Of course, your bank said you can increase your credit line this way!

Additionally, the bank can decide to close your HELOC for reasons completely out of your control (like a global pandemic that plunges the economy into the largest recession of our lifetimes).