What is your HELOC Strategy?

6 Replies

What is your HELOC strategy? I have two rental properties and I’m tempted to find a bank to open an equity line of credit so I can expand my portfolio. However, some investors I talk to say that is too risky. Others say it could be a good strategy but I don’t exactly know how people are using it. For example, are investors paying the HELOC off in a short time frame after using it for a down payment, or paying cash for properties with the credit and refinancing, or something else? I’m excited to learn what other investors are doing. I acquired both of my current properties using hard money and refinancing and now I’m looking for ways to use my equity that I captured.

@Nathan Levens I am not sure that many banks will actually do a HELOC on an investment property (at least not the ones I know). If you already have financing in place on the properties, you may be able to cash out refinance. Are you referring to cross-collateralizing the properties? That is a fairly risky strategy in my opinion. I like each property to stand on its own so that if one goes down, the whole ship doesn't go with it. This can happen, and one older gentleman at my local REIA recently told the story of losing a 44 million dollar portfolio during the last crash.

@John Warren thanks for the reply. Both of my properties have their own financing already. While I have quite a bit of equity in the properties, my lender says it’s not enough to make refinancing worth it. That’s why I was thinking of a HELOC strategy. I’ve seen that some banks may provide a HELOC on investment properties but it’s very few of them. I definitely don’t want cross collateralize my properties since I don’t want to lose the whole ship like you said. Maybe my best bet right now is to be patient until I can get my hands on some more capital.

I've been exploring a few options.... similar to this.

Investment A) do HELOC (no cash out refi becasue don't want to drain all the equity)
Buy investment B with savings. Recover savings with HELOC from A. Now, B gets HELOC (ideally I've bought smart and have equity/forced appreciation) and I can repay all of A. If I can't do HELOC do loan (likely to low dollar value for loan).

This frees up the money to do it again... If it doesn't work, stuck till I pay off A which isn't terrible as I'd have B) free and clear.

I purchased a duplex 5 years ago for 175k. It is doing well and is now worth about 290k. I took out a Heloc for 38k on the property a couple months ago and used that cash (and 20k of my own) to purchase another duplex. I now use the monthly cash flow after all bills to pay down the Heloc. It is rather simple and works well. It is also nice having the piece of mind to have the line available if something crazy came up.

I plan on paying it down over next couple years and then trying to increase the line to have more options available to make purchases etc.

@Matt K. @Brett Sorenson thanks guys for your input. That gives me a good idea of how other people are approaching the use of HELOC. Ideally, I’m wanting to save for my next purchase but now I’m trying to decide if a good HELOC strategy would help safely speed things up or just add unnecessary risk. I have a decent risk tolerance but for some reason the HELOC seems to make me hesitate.

What do the numbers say? The property I was using the HELOC on was cheap cheap cheap to operate. We're talking like 1200 yr for taxes/insurance and then you figure like 3-400 for the HELOC. A vacancy wouldn't be terrible and could be absorbed by the primary property.

Rent would of been around an extra 800 (before expenses).