What's the Smart use of a HELOC?

Question

Planning to refinance my primary residence and get a HELOC. I've just been saving money to fund my first rental property but looks like my primary residence has gained some good amount of equity . Read some articles that encourages to use it to slice down your Principal mortgage, some would use it to buy rental properties, and some just hates it. I'm leaning towards using part of it for REI and a portion to my principal. Would like to get your thoughts on using HELOC the smart way. Thanks guys!

Joe Villeneuve · Answer

1 - Your total cost is not as important as how you pay for it, and who pays for it.

2 - Your total return is not as important as how you receive it

3 - Using your LOC as your cash reserve saves you money on your cost since the interest charge doesn't happen until you use it...and it's reusable.  This also eliminates the need to hold back cash flow to cover it, which then makes potential bad deals good ones.

Armel Bayot · Answer

1. Something to do with TIME and INTEREST incurred in the amortization schedule . Lesser Principal = lesser interest= lesser what you owe and eventually pay it off early.

2. Will be looking for at least 10-12 % or higher ROI property, that cashflows to cover it

3. Considering it

Thanks for the feedback.

Armel Bayot · Answer

Thank you sir!

Joe Villeneuve · Answer

1 - Why would you take on a debt with a higher interest rate to pay down a debt with a lower interest rate?

2 - Using it to buy rental properties might work if those properties started out with a very high cash flow to cover the high monthly payments, however...

3 - I would use it as a cash reserve replacement for holding back arbitrary percentages of rent on your other properties to cover future CAPEX, vacancies, etc...

Joseph Firmin · Answer

Using your equity via a HELOC is a great strategy, continuing to put the money in your residence to work for you and not letting that equity sit idle. A first lien position HELOC is a solid strategy to pay down principal quickly by using the HELOC as your checking accouont... This frees up more and more equity more quickly for you to use to go invest with.