Should I pay off my HELOCS right now?

Question

Hello all!

My wife and I begun our RE investing journey about a year ago leveraging 2 HELOCS on our primary resilience to purchase STR’s. We are cash flowing pretty nicely now and we’re wondering if right now is now a good time to start paying the HELOCS off, or should we stack cash and increase capital right now for more future investing?

Thanks in advance for any guidance

Kevin Romines · Answer

It would be the same as far as paying down the HELOC's or stacking cash. However you wont gain much interest on the stacking of cash, but you will reduce the interest owed on the HELOC's. So the better choice is to pay down the HELOC's. It is equity you can access again when needed. The only down side risk is if the economy takes a huge crap and they shut off the HELOC's again like in 2008. At which point having stacked the cash is a safer bet. The odds of that happening are slim to none though, but anything can happen and no one has the ability to see what may be coming? Odds are though, that paying off the HELOC's is better choice with better benefits. God, I sound bi-polar!!!

I hope this helps.

Joseph Coleman · Answer

@Braydin Mehnert I agree with this. i-bonds are generating over 9% risk free return right now. Granted there is a limit on the amount you can invest (only $10K). But in principal I agree that you should allocate your money to the area that will give you the greatest return, regardless of whether that is paying off debt or investing in an asset that generates a return (adjusting for risk). @Wes Mccullar How often does the interest rate on your HELOC reset?

Braydin Mehnert · Answer

@Wes Mccullar While I am in agreement with @Kevin Romines, the only caveat would be if you had a way of generating a return greater than that which you are paying off in the HELOC. For example, if you HELOC is costs you 6%, but you have a wealth manager that is returning 8%, it would be better to "stack" the cash there, then to pay off the HELOC. With the current market, that is a hard thing to achieve so I would also say pay down the HELOC as either way those funds will still be available to you.

Caleb Brown · Answer

How much have you used of your HELOC's? I would use the cashflow from the STR's and pay them down. After they are paid down you can buy another STR, rinse and repeat.

Should I pay off my HELOCS right now?

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