Trying to understand HELOCs
I have been doing my research on BP for HELOCs. I wanted to post this to check my knowledge and see if i am grasping everything correctly along with find out the different exit strategies and results of the exit strategies.
So i learned if i have a primary house and have been paying down the equity i might be able to open a HELOC. Lets say the house is worth (according to the appraisal) 250k and i have 100k left on the loan. That means a HELOC at 80% of the LTV i would get 100k with an adjustable interest rate. I also learned that I will have to make payments on the HELOC but only on the interest until the agreed upon time (in which i will then have to pay P & I). From reading on BP i hear people mention use the 100k to get another property that needs rehabbing so for argument sake I purchase a house for 20k and put 50k worth of repairs into the house. Now i need to refinance or sell the house.
If I sell the house for 150k then i take 70k and pay off my HELOC. Am i allowed to pay off the HELOC at this time?? or do I have to wait until i can pay P & I?? I have to assume I would pay capital gains tax on the profit because i can't do a 1031 exchange since i will use the profit to pay off the HELOC. Or can I still do a 1031 exchange if i take 70k to pay the HELOC and the other 80k to get another house??
If I refinance and the house is now worth 150k. I would put tenants in after the rehab. I would then use 70k to pay back the HELOC. Then what do i do with the 80k? Do i put it into the mortgage of the newly refinanced home? Or do i use the 80k to get another house?
I think i may be struggling with the mindset of having a mortgage and having a paid off house. If i take the 80k and get another house that will be three house now but the second house now has a higher mortgage and further from me paying it off. Again as a beginner i see this as a problem but maybe it's my mindset and my goal should be on having no debt (or paid off houses).