Mortgage Paid off - HELOC?

Question

I'll keep this basic as we are just now in our education phase. Home and property are paid off. (Value $220,000) We live in a decent market for B, C and D properties. We're looking into duplex/quad and/or potentially a SFH to get started. I have a 9-5 that I will keep. Would it be beneficial to take the HELOC or Cash out Refi route? The only debt we carry is for the wife's car. Or should I Dave Ramsey it and just save? Any of your thoughts would be appreciated. Thanks much.

Tim Herman · Answer

@Vernon Huffman I will give an example. Have $100000 to invest going to use the 1% rule(rent must be 1% of purchase price) and the 50% rule ( half income goes to expenses). Buy 1 house cash or 5 houses 20% down, yes i'm ignoring closing cost. Rent $1000 per month/$500 net for 1 house or $6000 per year.  $500 less $430 mortgage = $70 per month net * 5=$350 * 12=$4200 per year. Use 3% rent growth compounded annually for 10 years rents grow to $1344. One house will clear  $9128. 5 houses will clear $24840. Yes i know i am ignoring increasing cost. Same 3% inflation for selling = $134400 for 1 house or $672000 for 5 houses. Man those dam mortgages They are paid down to $65073 * 5 =$325365. Equity in 5 houses= $346635. Leverage is power in real estate.

Joseph Walsh · Answer

I recently looked into this.  And yes, that's what I plan to do.  Due to a lot of "other" things going on, this happens to be on hold for me now, but its sound.  And if you are thinking the rich day/poor dad, your paid off house is still a liability (it costs you money despite no mortgage), and doing this actually turns it into an asset, assuming your cash flow is > than your heloc payments are.   I just wish I had that much equity...I don't have enough to be a straight cash buyer like you, so I need to do additional leg work... :D