How to invest my HELOC properly

Question

as you know there are many ways to finance your first property. Whether you are looking to flip or buy and hold the methods are abundant. My wife and I own our home with approximately 4.5 years remaining on our mortgage. We recently obtained a home equity line in the amount of 140K. Since last spring I have been diligent about my homework, have zeroed in on an area I would like to invest and feel as if we are ready to make some offers. I have a fantastic realtor and a contractor who I trust. The question becomes how to be very strategic about putting the HELOC to work without over-extending ourselves or depleting our cash position. Cash saved besides emergency funds is approximately 35k and we are looking in an area where 3/2 SFh are priced in the 130k to 175k range and more than likely will see an upside in appreciation. BRRRR'ing (haha) a property is tight in this area and will prove to be difficult but not impossible. There are plenty of properties that are nearly turn-key but not 100%. On another note, the HELOC is a floating 2.25% with the potential to increase. Considering the times I feel confident it will not skyrocket any time soon.

So how would you put a HELOC to work?

Timothy McLean · Answer

Yes! That is on the table for sure. Ironically Omaha is my #2. I had a fantastic young lady sending me properties for the past few months but went with an area here in South Florida I can drive to in a few hours. The realtor and contractor are associated with my full time work and have my best interests in mind so that was a factor as well. An all cash offer would put us in a different category for consideration.

Good stuff Jody,

Thank you.

Need any help in South Florida let me know.

Jody Sperling · Answer

Even if the HELOC skyrocketed, it is 100% impossible for it to equal the interest rate you pay on an amortized note during the first half of the amortized note's life. First year of an amortized loan will run you between 70% and 85% interest.

As for your investment location, it sounds like my home town of Omaha, Nebraska. Given the conservative nature of your position, why not make cash offers on the houses you want, using the HELOC, moving tenants into the home, attacking the HELOC with the exceptional cashflow of a paid-off property and refinancing in 6 months to a traditional note?

Doing that, you'd replenish the HELOC, come away with a very low mortgage, and an opportunity to repeat the process again in six months. Every property you picked up like that would speed your next acquisition by as much as a month. You could snowball very quickly into a highly enviable situation.

Best of luck however you proceed!