Using HELOC to buy out of state LTR

[Benjamin Rosales]

Hi All, 

this is my first post and super grateful for this community. I'm from the bay area but am planning to invest out of state, specifically in North Carolina Triad area. My longterm plan is to buy and hold, hopefully 1-2 properties a year in the 100-200k range doing value adds and to accumulate about 10 property or so which would b equivalent to 10-15k/ month once paid off. I fortunately have paid off my primary home and it's estimated value is about $900k. I also have a business that does well and would allow me to pay off properties quickly. I am thinking of taking an Heloc on my home and purchasing the rental in full, doing this once a year then, aggressively paying off the property over the course of a year. It seems like it would be easier in terms of having to originate a loan for each purchase. What do you think? Thanks in advance.

[Marcus Auerbach]

My first concern when I hear HELOC is always that you are leveraged 100%. Because things almost never go to plan, one should never invest in RE without 20% cash for downpayment and a good amount of reserves.

The combination of: low price point + remote + rehab is compounding risks quickly to the point where I think it's unacceptable. Financial death by 1,000 small cuts. You can deal with or or two of these factors, but all three together is toxic.

If your plan is to BRRRR you can use a HELOC for short term funding to supplement your cash position. And then put long term funding on the property and pay off your HELCO in full (within 6-9 months).

A core principal of real estate investing is to expose self eliminating debt to inflation. Read that again, this is fundamental. Two pieces here: self-eliminating means not paid by you but by your tenant. And inflation means that your debt shrinks in real value every year because of inflation. Think people took out 30 year mortgages in the 60s to finance $10,000 over 30 years... Inflation has devalued that debt. So long term financing is like a debt time machine.

A good rule of thumb is, in the beginning grow your portfolio wide and defer as much of your payments to 30 years in the future. Once you portfolio has grown enough you can switch to faster paydown vehicles if you like, even though mathematically speaking refi till you die is better.