Leveraging a cash property through a HELOC - pay off strategies

[Rachel De Jesus]

I am looking to fund an out of state long term rental through a HELOC. Right now the cash flow from the property covers the interest only payment of the HELOC but once the 10 year draw period is over we will be looking to take pay majority of the HELOC out of pocket. The idea is to buy 1 or 2 properties through the 1 HELOC and once we have enough equity, we will refinance the new properties to pay off the HELOC or potentially just refinance the house we took the original HELOC on and pay off the HELOC entirely. Has anyone had experience in leveraging and paying off HELOCs? Would like to hear different strategies or ideas on how to accomplish this. The idea is of course to minimize payment out of pocket and fully leverage this house we own in cash.

[Melissa Justice]

@Rachel De Jesus,

Great strategy — using a HELOC on a paid-off property to fund out-of-state rentals is a smart way to put your equity to work, and you're thinking ahead about exit strategies, which is key.

What You’re Doing Right:
- Interest-only during the draw period keeps cash flow flexible.
- Using the HELOC to buy cash-flowing rentals means you're turning idle equity into income-producing assets.
- Planning for refinancing later (either the new properties or the original one) shows you're thinking long-term.

Strategies to Consider:
Refi the Acquired Rentals - Once they’ve appreciated or you’ve improved them:
- Use a cash-out refi or DSCR loan on the new property to pay back the HELOC.
- Aim to keep the refinanced loan amount ≤ 75% LTV to maintain decent cash flow.

BRRRR-Lite Approach
If you buy slight value-add deals, even turnkey ones with light updates, you could:
- Boost the value,
- Refi at the higher appraisal,
- Pay off HELOC faster without tapping your pocket.

Refi the Original Property (HELOC Source)
If rates remain reasonable and property value continues to rise:
- Do a cash-out refinance to consolidate the HELOC and lock in a long-term fixed rate.
- This may make sense if your HELOC rate balloons after the draw period ends.

Pay Down Strategically - If you’re earning strong cash flow from rentals:
- Consider partial paydowns during the 10-year draw, especially if your HELOC has a variable rate.
- Keeps your utilization low and improves your credit/future borrowing ability.

A Few Watchouts:
- Rate volatility: HELOCs are usually variable. Have a backup plan if rates spike.
- Exit timing: If market values drop or rates are unfavorable when you want to refi, it could delay your payoff plan — build in a buffer.
- Cross-collateral risk: Don’t overextend equity across too many properties without clear refinance timelines.

Turnkey providers like ours can help source rental-ready properties in strong cash-flow markets (like the Midwest and Southeast), making it easier to hit your HELOC payback goals.

You're thinking like a savvy investor — leverage with intention, always with an exit in mind. 

Best of luck,

Melissa Justice

Investment Strategist at Rent to Retirement