Quote from @Nicholas L.:
@Elizabeth Brown
it's a good question. you can obviously... be patient and just save up from your active income. no one really wants to hear this though... they want the shortcut.
there are also ways to recycle capital, like the BRRRR method, which works but is tough right now with interest rates so high and deals tough to find (and 10 other things, but those are big ones). you can also look into lower down payment options, like a house hack, or a seller finance deal. also tough to find, and not a fit for everyone.
with that said... i have to ask you about the property you're looking at. i'm skeptical that it will 'cash flow' $400-500 a month if you're using a HELOC for the down payment. HELOC money is expensive money... so i think you need to take another look at the expenses and make sure you're including all of them - not just PITI.
and you may know this, but i'll remind you - HELOC payments are usually interest only for the first few years during the draw period. which means that if you're making the minimum payment, you're not paying down the principal AT ALL. you then have to pay down the principal during the repayment period. so, you're trying to force the property to bear the cost of the HELOC - which it probably can't support by itself.
You are correct, the cash flow number did not include the HELOC payment. The property is a cheap 4-plex in a college town near us that is already fully rented, and the rental income surpasses the PITI, but that’s where we run into my question. Obviously the “cash flow” would go towards paying back the HELOC, so we wouldn’t see any of that income for a couple of years. Granted we have money from our W2 jobs that we can also put towards it to pay it off sooner. We just always hear about people getting started buying their first property, and even on a lot of the webinars we watch they run the numbers, get a couple hundred dollar cash flow deals and call them good. What we haven’t heard be said outright is, where does the 25% down for the next property come from? Since we are using equity money, are we stuck only buying one every few years until the HELOC can be paid off, rinse and repeat?
