HELOC Finance Strategy????

Question

Hi all!

I have a different question about a finance strategy that I'm unsure if it would be helpful to me or not.  Here's the situation.

We bought our primary in June with 20% down.  Previous to that we had been saving also for our first rental, which we ended up buying in July also with 20% down.  With a healthy reserve for the rental and we set aside a 6 month rainy day fund, we have spent a significant portion of our saved capital to do all this.  By around spring of next year, we will have saved up a significant portion of capital again (about 70K) to continue expanding our rental portfolio.  Our goal is to use the BRRRR method going forward as we saw how quickly we can eat through capital with just putting 20% down every time.

My question is this:

Should I take that money, go and re-finance our home with that cash effectively putting another 20% of equity in our primary residence, and then take out a HELOC for the 70K that would be able to be used fund the next property.  Using the BRRRR method we would then pay back the HELOC each time it needed to be used.  The reason I was thinking about this is it would effectively reduce monthly payments about $300 which we would then just add to our savings rate for investing, and then also reduce DTI from about 25% to 22% (not sure if the DTI reduction would be a huge benefit when going to refinance with the bank).

Or....

Do I take the money, leave it in our savings account and just use it to fund the BRRRR(s), and have the capability of having true liquidity and then re-fiance out once we are rented?

The only drawbacks I see of the first part is that it's not quite as liquid as cash (or as flexible to move quickly), and that if something drastic would happen to the housing market and my house value dropped dramatically, I would lose the HELOC and equity.... (while I feel it would be unlikely that we would see this type of drop, it is scary to think about).

The whole point of this is to make sure my money is working as hard as it can for me, Vs just sitting in an account while I find the right deal, and we want to be able to make cash offers.

Thoughts or things I am missing?  (You don't know what you don't know!!!)  Thanks for any insight!!!

Vincent Incopero · Answer

@Mike Barry Happy to send you a similar set of contacts depending on the grade and type of the investment property

John Warren · Answer

@Mike Barry I can send you a few. PM me and I will make it happen.

Mike Barry · Answer

@John Warren do you have any lender recommendations for a HELOC on rentals in IL?

John Warren · Answer

@Jim Leboeuf I am a huge proponent of using the HELOC to invest, and I am personally using one now to do a deal here locally in Cicero. To me, my equity is completely dead if it is tied up in a property  and as long as I use all of that leverage intelligently I can unlock it using the HELOC in order to get a return on the equity. I would personally always take out the HELOC even if you don't end up using it for a while.

Jim Leboeuf · Answer

Awesome thank you for the advice. I truly appreciate it!!!

John Warren · Answer

@Jim Leboeuf I would never personally encumber my cash by paying down a mortgage at the early stages of my investing career. If I had trapped equity, I would unlock it with a HELOC. If I had cash, I would hang onto the cash AND see if I could get a HELOC!

Jim Leboeuf · Answer

@John Warren. Thanks for the response.  If you had spare cash sitting there would you put it into your house and then with draw the equity.  I agree, sitting equity should be used not just sit there.  But I’ll have the opportunity to have straight cash or put that into my home and then pull it out as equity.  I’m just wondering if this is worth it (or the potential risk Vs reward of lowering my payment and still having the capability to have a LOC).