Best HELOC Strategy for Buy and Hold Properties?

3 Replies

Hi all,

I'm curious as to how some of you are utilizing HELOC and strategies when it comes to investing in buy and hold properties/rentals. Let's assume I will not use it for fix and flips or short term deals.

Here's a scenario I want to run by you guys:

Let's say there is a unit on the market for $150k. I decide to tap into the HELOC and borrow the funds to put 25% down towards the downpayment only - the rest I just get a traditional conventional 30 year loan. This does sound good since I do not have to use any of my own money towards the downpayment.

The question is: what is the best strategy in terms of repayment of the HELOC debt. Do you stretch it out for many years and pay INTEREST ONLY? Let's assume interest only is $80/month in this case.

Assuming the numbers work ... do I just treat HELOC interest rate monthly expense of $80 in a similar way you would calculate things like monthly estimated repairs or monthly utilities and then see what kind of cap rate this type of deal provides?

My goal is to make sure the property has positive cash flow after all expenses including interest rate towards HELOC is paid off.

Just curious if anyone has any recommendations how to be strategic with using HELOC.

Thanks! :)

@Pavel K. you will want to get the lowest payment possible since your HELOC payment will be a part of your new DTI ratio for the 30 year Conventional loan on your new soon to be acquired property. I've thought about doing this strategy but haven't needed the funds yet, it may be an option later if needed.

Most HELOCs I think has interest only for certain number of years, maybe one or two. You will have to pay it back anyway. I think interest only is good option for flippers who can pay the HELOC back after selling the property or BRRRR users who plan to refinance the property after like a year and repay the HELOC. In a meanwhile they only pay that $80 interest a month for a year.

Thanks @Ray Johnson ... that's good to know regarding the DTI ratio, didn't think of that!

@Lana Lee ... I agree, this makes more sense to me now and thanks for your insights... seems like as long as the rates are low, it's a lot better option for flips or BRRR vs hard money loans.

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