What would you do? Options utilizing heloc

Question

Hello,

I’m a new investor in the southern Maine area midway through the first year of my initial house hack (it’s going well! Besides paying for heat) .

I have an older relative who wants to partner with me on future deals with a goal of more passive income to subsidize his retirement. He has a 800-825k single family home that is completely paid off and is interested in utilizing his heloc (I would be finding the deals, managing the rehabs, taking all the calls, etc).

I have thought a lot about how to best utilize this heloc but maybe getting analysis paralysis and am open to all suggestions and wondered what people thought I should do. I’ve been consistently considering the following 3 options:

- waiting the full year so my initial house hack is complete and then I can qualify for 5% down payment  ( I have 30k in savings) primary financing on small multifamily that need some work and using the heloc to make repairs (collect market rents, refinance later)

- use heloc to create a detached or attached ADU on single family homes and house hack again.

- foreclosures and auctions

We have discussed out of state BRRRRs but this seems like the riskiest option but one that could get the heloc costs covered the quickest through the refinance and possible cash flow.

Any thoughts on the options listed? What would you do if you were in my shoes? Any advice is appreciated.

Thank you

Melissa Justice · Answer

@Dan Keefe,

You're in a very exciting position-house hacking already in progress, a motivated capital partner with a paid-off home, and solid savings. That combo gives you a lot of flexibility and options. Here's how I'd break it down:

First: What’s Your Main Goal?Cash flow today?Equity growth?Scalability for the long-term?Since your partner is looking for passive income and you're willing to be active, your structure could work well with the right investments, but minimizing risk is key, especially when leveraging a HELOC.My Take on Your 3 Options1. Wait for 5% Down Primary Purchase + Use HELOC for RehabThis is the most strategic low-risk play.Leverage your FHA or conventional loan for cheap entryUse the HELOC like a BRRRR fund—to renovate, then refi and pull cash outAdd real value by targeting a light to moderate value-add multifamilyIdeal for your partner since you’re creating equity + cash flow with controlled downsideRating: 9/10. Best balance of control, upside, and risk.2. Use HELOC to Add an ADU and House Hack AgainThis works if local zoning supports it and you’re committed to staying in the area.Great long-term value-add to a propertyMore passive cash flow for your partnerBut slower returns and harder to scale fastRating: 6.5/10. Solid but more of a legacy build than a growth engine.3. Foreclosures & AuctionsThis is high-risk, high-reward, especially without deep local market experience or a trusted boots-on-the-ground crew.You’ll need cash fast (HELOC helps), but risk of unseen repairs or title issues is higherThese are great once you’re more seasoned, but could derail a good partnership early if things go wrongRating: 5/10. Be cautious. This path needs a strong team and high tolerance for risk.Bonus Option: Turnkey Rentals in the Midwest or SoutheastIf you want predictable cash flow, low effort, and scalability, this is a smart option to consider.Your partner’s HELOC could fund multiple down payments on properties that are already rehabbed, tenant-ready, and managed.You focus on acquisition + portfolio building, while your partner sees returns without the headaches.Markets like Indianapolis, Birmingham, Cleveland, Columbia SC consistently meet cash flow metrics and are landlord-friendly.Rating: 8.5/10. Especially good for your partner’s passive income goals.What I’d Do in Your Shoes:Short-term: Pursue the 5% down multi-family purchase, use HELOC for rehab/BRRRR, and house hack again.Mid-term: Use HELOC leverage for 1–2 out-of-state turnkey properties to add passive cash flow without you being stretched too thin.Long-term: Build systems, team, and passive income streams for your partner while gaining experience and equity for yourself.Let me know if you want help modeling cash flow or comparing markets-I’d be happy to run numbers or share insights.

Best of luck,

Melissa

Kyle Vogeler · Answer

Depending on the amount of equity that your partner is willing to "take out" of their personal home, there may be no reason to house hack.

$600,000 can conservatively get you a portfolio of $2,400,000.

My advice:

1. Start small...just because the $600K can buy a $2.4MM property, doesn't mean you should. Start with a smaller property (2-6 units), that has some value-add potential. Work through the project, get the units filled and build confidence in both your partner (and yourself). Maybe even consider partnering with someone more experienced to expedite your learning process.

2. Grow exponentially. Now that you started small, updated and stabilized your first property, you should feel comfortable doing what you did before but on a larger scale. Don't rush this process, but now you can look for a property (or multiple smaller properties) that could triple the size of your portfolio. Work through these projects and you should have a sizable amount of equity to either continue growing or to buy-out your partner.

3. Don't be greedy. Be realistic, your partner is fronting essentially all of the money so they should get a majority of the returns. Yes, you may be doing the work, but that wouldn't be possible without them. Treat them fairly and you'll have a partner/resource for life, give them 70-80% of the ownership, and remember, 30% of something is better than 100% of nothing.

Feel free to message me if you would like to speak about this more. I'm always excited to speak to other investors!

Marc Winter · Answer

@dan

@Dan Keefe it sounds great on the surface.  Personally, I won't partner with friends or relatives.  Maybe wait until you have actually completed a deal or 3?

If you do decide to move forward with your relative, consider forming an LLC, with all your roles spelled out in detail in your partner agreement.  Take title in the LLC.

Yes, there will be more expense doing it this way; however it would protect you both in the event of a deal going sideways--especially important for your 'silent partner' relative with the large f&c property.

Nicholas L. · Answer

@Dan Keefe

if you're trying to make a return that beats the interest rate on a HELOC to generate "passive income"... that is going to be very, very tough.  HELOC money is expensive money.  so this is basically impossible on LTRs.  you would need some kind of active income like a flip.  and a BRRRR is not going to generate ANY "cash flow" in the short term.  rates are too high.  BRRRR is an equity strategy, not a cash flow strategy.

and just to be direct... since you asked, my advice would be to build up a track record first.  if you can succeed on a flip or a BRRRR with other financing options - great.  but borrowing the money from a relative on your very first deal, with zero track record, in today's tough environment?  i don't think that is fair to either of you.

just my opinion

good luck in whatever you decide

Dan Keefe · Answer

Hey Denver,

Thanks for the response ! Yes, in my area ADUs are allowed via zoning but it’s tricky since it’s relatively new legislation and not many people in the area (that I’m aware of) have started to add ADUs. Thanks and I’ll be reaching out to you soon!

Kerlous Tadres · Answer

Hey Dan, focus on waiting for 5% down financing for a multifamily property. It’s low-risk, allows you to build equity, and you can use the HELOC for repairs. After refinancing, you can scale. The ADU option adds income but can be tricky with permits, while foreclosures and auctions are high-risk.I’d recommend starting with the multifamily approach for stability, and then exploring riskier options once you’ve gained more experience.

Phil Shaffer · Answer

I love this topic because I too have an older relative with about the same value sitting in their home, and we have a discussion once every other week about my suggestion to them of using a HELOC to pull money and buy a few cash flowing assets (since they are ready for retirement, their main goal is immediate cash flow).

For what it’s worth, both my multi-unit rentals in Pittsburgh do cash flow!

Denver McClure · Answer

Hey @Dan Keefe, feel free to PM me so we can hop on a call. I personally like the ADU idea if zoning permits you to build one. You also have a few different options on the second house hack as well. Happy to help.

Melissa Justice · Answer

My pleasure!

What would you do? Options utilizing heloc

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