Hey BP I don't need to do this, (currently at a savings rate of 2k per month) but I'm always looking into different strategies. Right now @30yr I have 2 rentals and moving towards the next. Plan is to invest into SFH and put 25% down through my own cash and savings (purchasing 95-130k homes)
I do have equity though in the two properties in total of around 175k. However like I said strategy is SFH in the beginning then ideally grow into multi family.
Is taking out a Heloc always a bad idea for long term or does it depend on the terms of the Heloc? Also what’s your two cents in what I should do here. Stay the course or look into switching things up? Long term goal is to earn 20k per month in cash flow by age 50 and ideally 10k by age 40.
Real Estate Agent · Milwaukee WI · Member since 2024 · 321 posts · 254 votes
1y
That's an awesome goal. How old are you now so we can judge how aggressively you should be investing? A HELOC can totally be used for a down payment (I am currently using mine to do this) but you just have to plan for how you will pay it off. Two main ways are 1. cashflow/save enough monthly to pay it down. 2. Do a BRRRR and use the cash back refi to pay off the loan. I am currently doing the first one, but if I could do it again I would plan for the second. It's just too slow for me this way. I will pay it off in the 5 year period, but I really want to get my next property much sooner than that. And I still will, but it won't be because of this deal it will be in spite of it. I am less than two years in and have already paid it down from $80,000 out of my HELOC to $55,000. And about 3 of those months I wasn't cash flowing because I was doing fixes on one of the units. Best of luck!
Hey thanks for the speedy reply! I’m 30 years old, were there any unexpected terms you ran into with your Heloc like an adjustable rate for example? Also I suppose almost sounds like the quicker to pay off the better are there any penalties for that?
Lastly for my goals what would you suggest I do with my age and were I want to be? Better to simply save 25k in 1.5 years for next down payment or try to speed things along with a Heloc
Real Estate Agent · Milwaukee WI · Member since 2024 · 321 posts · 254 votes
1y
I think if you have the savings, use that first. Think of it as what is the cheapest money you can get? Your own money is obviously the cheapest, so use that first. If you use that to buy a cash flowing property, then you can use that cashflow, plus your current saving rate to start saving for the next one. Now use your HELOC for a second cash flowing property. Now you have let’s say $500 coming from two properties plus the $2000 you can save on your own. So $3000 a month to pay down your HELOC. Paying that down at that rate should be no problem.
But better than that add the BRRRR in and you can likely get at least some of that HELOC and/or first property cash back. So then you are basically ready for your third property already. You can see how this could really ramp up your portfolio fast.
And HELOCs really aren’t too complicated. Yes there is an adjustable rate on my HELOC but that doesn’t really bother me as they let me pay a few hundred dollars a year to lock in my old rate. And they will spell out for you how much it can change each year. Most should not have prepayment penalties. It really works like a bank account that has money in it. But instead of earning interest as it sits there, they earn interest for any money you don’t have in there. Mine does have a penalty for closing the HELOC early. But I think that is like $50-500. Not the end of the world. But I also don’t really foresee a reason I would close it early, because once u pay it off I will likely just use it for another property if I still have a decent amount of time on it.
Nice honestly this helps out a lot, I really like the idea of using my own money as the cheapest way to get in, then waiting for the right time to use the HELOC, because in my eyes the more time I wait to use it ideally the more my equity grows. Also if I purchase another property without the more can dedicate all cash flow into paying off the Heloc as well.
Also I feel like the quicker you pay it down/ have more accets before using the HELOC the better your debt to income ratio is.
Real Estate Agent · Milwaukee WI · Member since 2024 · 321 posts · 254 votes
1y
@Ian Hutton also, what I have done is I use my HELOC as my holding position currently for my properties capex holdings as well. That way I pay less in interest but still have those funds available if I have capex expenses. Once I eventually decide to close my HELOC or once the draw period is about to end, I will pull that money back out. But for now, might as well have it sitting in there saving me 6% of interest rather than sitting in a savings account making me 4%.
Ian, it really depends on your goals and risk tolerance. A HELOC can be a useful tool if the terms are favorable, but it does leverage your current equity and increases exposure. Since you're starting with single-family homes and moving into multi-family, staying the course and building disciplined savings keeps risk lower. I invest in the Midwest, and many investors I work with use HELOCs strategically for high-confidence deals while maintaining strong cashflow.
Hey BP I don't need to do this, (currently at a savings rate of 2k per month) but I'm always looking into different strategies. Right now @30yr I have 2 rentals and moving towards the next. Plan is to invest into SFH and put 25% down through my own cash and savings (purchasing 95-130k homes)
I do have equity though in the two properties in total of around 175k. However like I said strategy is SFH in the beginning then ideally grow into multi family.
Is taking out a Heloc always a bad idea for long term or does it depend on the terms of the Heloc? Also what’s your two cents in what I should do here. Stay the course or look into switching things up? Long term goal is to earn 20k per month in cash flow by age 50 and ideally 10k by age 40.
Thanks in advance and hope to hear from you soon
Lines of credit are great tools for short term use. so, when taking one out you want to understand your payback strategy. So, yes, usng short term leverage using your tapped equity can make a ton of sense. Just have to understand how you are going to pay it back.
