HELOC Investment Strategies

Buying & Selling Real Estate
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HELOC Investment Strategies

Tim Kaminski
St. Petersburg, FL · Member since 2015 · 317 posts · 71 votes

BP,

Have acquired my first property February of 2018.  Recently got a soft appraisal from my realtor and banker who told me they feel comfortable that I can get $50K out of the home to use on a new property.  I'm in Tampa, FL and mainly looking for 2-4 units so $50K doesn't get me anywhere close to my market prices($150-250K).  I know ppl invest with HELOCs and just wanted to understand how, exactly.  I put about 20K of my personal money into the purchase and rehab of property and was hoping to be able to pull out and recycle the money.

Options as I see them.

  • Use $50K as a downpayment on property in my area.  That would mean I have loans on 100% of the property.  That sounds risky.  Do ppl do this?  
  • Use $50K as "cash" purchase of OOS investment properties in cheaper market.  Refinance property to pull money back out.  Repeat  Again, risky with unknown market.
  • Wait for $50K to grow to 100-150K.   Buy all cash and refinance. Risky as market looks like it may go down/level.  Can take years and years to reach this. 

LOTS OF RISK. I want to grow and use the money I have created.  Any ideas?

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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
7y

Yes, most leverage 80% to scale.  I put a Heloc on my house this year. Haven't used it, but it wasnt difficult to qualify for and only $375 to establish + I think an annual maintenance fee. Not much harm to have just in case.

Glad you are aware of the risk of borrowing more, but it depends on the deal.  I bought a BRR this year and the returns were more than enough to borrow for.  I would rather borrow for a good deal in my local market than buy a hood house OOS at retail with the money I have.  

20% down on a good deal is much better than 100% down on a bad one.

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  • Tim Kaminski
    OP
    St. Petersburg, FL · Member since 2015 · 317 posts · 71 votes
    7y
    @Joshuam Rivera You are saying you will cashflow $700-800 after paying both loans, insurance, cap ex, maintenance etc? Or you are going to forgo saving for cap ex to achieve this? How are you planning on paying back the principle balance of HELOC?
    0Reply
  • Tim Kaminski
    OP
    St. Petersburg, FL · Member since 2015 · 317 posts · 71 votes
    7y

    @Victor S.I am looking at value add 2-4 unit multi families for long term buy and hold.  For paying off the principle, I guess I would have to refinance the property to pay it off? Which would end the money train unless I can refinance for more than my heloc

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  • Tim Kaminski
    OP
    St. Petersburg, FL · Member since 2015 · 317 posts · 71 votes
    7y

    @John Morgan How did you pay off HELOC within a year? Just using all your cashflow to pay it down? Or refinance ?

    0Reply
  • Tim Kaminski
    OP
    St. Petersburg, FL · Member since 2015 · 317 posts · 71 votes
    7y

    @Jonathan Stone Nice!  Where in Cincinnati did you buy? I grew up there.  Would you consider your 4plex a homerun or base hit? Just curious how great of a deal I have to find to do what you did.  The adjustable rate was my initial fear.  I would much rather know the exact amount of my expenses each month

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  • Jonathan Stone
    Investor · Columbus, OH · Member since 2015 · 15 posts · 6 votes
    7y
    @Tim Kaminski it's always great to talk to a fellow Buckeye! My 4plex that I purchased using a HELOC is on the west side of town in Sayler Park. For the first year it was a base hit because I came in undercapitalized and underestimated the amount of turnover (2 of 3 initial tenants left within 2 months of purchase) and deferred maintenance needed. However, I renovated 3 units and have been operating at 100% occupancy since June. Purchase price was $125K, these are 3 bd 1ba garden style apartments renting for $700 per month. I pay about $275 per month for water. So all in all I'd say this was a solid double.
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  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    7y

    @Tim Kaminski

    I paid off my HELOC within a year by putting all my cash flow and extra savings into it. I didn't contribute anything to my retirement during this time. I considered this my retirement account.

    1Reply
  • Justin K.
    East Texas · Member since 2018 · 206 posts · 138 votes
    7y
    Originally posted by @John Morgan:

    @Tim Kaminski

    I paid off my HELOC within a year by putting all my cash flow and extra savings into it. I didn't contribute anything to my retirement during this time. I considered this my retirement account.

     After I receive my annual bonus in March, I will be doing the same. My 401k has yielded a -3.27% growth even in this upward swing economy. I have much better things to do than loose money in a crappy game of Russian roulette. 

    1Reply
  • Joshuam R.
    Rental Property Investor · FL · Member since 2016 · 271 posts · 92 votes
    7y
    Originally posted by @Tim Kaminski:
    @Joshuam Rivera You are saying you will cashflow $700-800 after paying both loans, insurance, cap ex, maintenance etc? Or you are going to forgo saving for cap ex to achieve this? How are you planning on paying back the principle balance of HELOC?

     Sorry for my delay, here is a better breakdown:

    Return (IRR):47.69% per year
    Total Profit when Sold:$507,869.64
    Cash on Cash Return:1,539.00%
    Capitalization Rate:14.39%
    Total Rental Income:$673,908.99
    Total Mortgage Payments:$145,925.37
    Total Expenses:$94,046.31
    Total Net Operating Income:$579,862.68

    First Year Income and Expense

    MonthlyAnnual
    Income:$2,200.00$26,400.00
    Mortgage Pay:$608.02$7,296.27
    Vacancy (5%):$110.00$1,320.00
    Property Tax:$125.00$1,500.00
    Total Insurance:$66.67$800.00
    Maintenance Cost:$83.33$1,000.00
    Other Cost:$16.67$200.00
    Cash Flow:$1,190.31$14,283.73
    Net Operating Income (NOI):$1,798.33$21,580.00

    Breakdown Over Time

    If Sold at Year End
    Cash to ReceiveReturn (IRR)
    Begin-$33,000
    1.$25,080$7,296$3,500$14,28443.28%$33,310$21,2007.53%
    2.$25,832$7,296$3,605$14,93145.25%$36,721$24,50033.07%
    3.$26,607$7,296$3,713$15,59847.27%$40,237$27,90541.31%
    4.$27,406$7,296$3,825$16,28549.35%$43,864$31,41944.76%
    5.$28,228$7,296$3,939$16,99251.49%$47,606$35,04646.36%
    6.$29,075$7,296$4,057$17,72153.70%$51,467$38,79247.15%
    7.$29,947$7,296$4,179$18,47155.97%$55,452$42,66247.54%
    8.$30,845$7,296$4,305$19,24458.32%$59,568$46,66047.72%
    9.$31,771$7,296$4,434$20,04160.73%$63,818$50,79247.80%
    10.$32,724$7,296$4,567$20,86163.21%$68,209$55,06447.82%
    11.$33,705$7,296$4,704$21,70565.77%$72,748$59,48247.82%
    12.$34,717$7,296$4,845$22,57568.41%$77,439$64,05247.80%
    13.$35,758$7,296$4,990$23,47271.13%$82,290$68,78047.78%
    14.$36,831$7,296$5,140$24,39573.92%$87,308$73,67447.76%
    15.$37,936$7,296$5,294$25,34576.80%$92,499$78,74147.75%
    16.$39,074$7,296$5,453$26,32579.77%$97,871$83,98747.73%
    17.$40,246$7,296$5,616$27,33382.83%$103,432$89,42147.72%
    18.$41,453$7,296$5,785$28,37285.98%$109,191$95,05147.71%
    19.$42,697$7,296$5,959$29,44289.22%$115,154$100,88547.70%
    20.$43,978$7,296$6,137$137,47792.56%$121,332$106,93247.69%
    Total$673,909$145,925$94,046$507,8701,539.00%
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