I recently closed on my first HELOC after acquiring this property from BRRRR'ing my owner occupy duplex. I purchased the building for 80k with conventional investment financing- put about 11k into it and got the upstairs unit rented. The downstairs tenant has been in the building for 25 years and pays below market rent.
rents- $625 2 bedroom
$750 1 bedroom
PITI- $750/ month. This buy is a long term and once I can renovate the lower unit and add a bedroom I will be able to pull 1k/ month.
I owe 59k on the building and was able to pull a 36k HELOC- I want to use these funds and invest with them.. DTI is fine with heloc payment included..
I guess my question is... what is the best way to use heloc funds? I am unable to buy a building cash with what I have at this point. Is using a heloc as a downpayment smart? I don't fully understand the exit strategy with paying of the heloc if I use for a buy and hold. Should I use the funds to aid in a flip for "short term money" and build up my liquid?
Any thoughts, ideas ect will be helpful and thank you. (Sorry if this post is all over the place)
HELOC's are a great way to finance short term deals like flips and BRRR's. This has been my strategy since I got my snowball moving down hill. Make sure that you do not over extend yourself, keep enough in the account for the unknowns. If you get a HELOC linked to your checking account it is very convenient to transfer money as needed. I always have a date in mind to pay my HELOC back to a zero balance when I make a purchase. Stay disciplined and don't access this money for anything but this strategy or a true emergency. The HELOC can support the purchase and renovation. Once you sell the flip and pay off the HELOC you have more money to put down on your next investment or current properties. The more you pay off on your current properties the more equity you will have available to use for this strategy. I am a pretty conservative investor and prefer to pay off my properties and use the equity in them when I need to fund short term deals.
I have done very well with this strategy. You save a lot of money and time with cash purchases (using your HELOC) by avoiding the expense of financing and frustration with underwriters. Not to mention you will get an edge over the competition when you dont have finance contingencies.