HELOC versus Mortgage for REI

4 Replies


I have approx. $250K HELOC available (against my primary residence) that I want to use to invest in residential rental property. What is the best strategy to use this? My LLC already owns one fully-paid rental property.

Option 1 - LLC buys one more property with most of HELOC. Closing cost is lower.

Option 2 - LLC buys 3-4 properties with $50K-$75K down payment coming from the HELOC for each, and the rest from new personal mortgages. Closing cost is higher for each buy.

HELOC is tied to Prime, and the payments start much higher than mortgage, although in the log run, they go down.

If I go with Option 1 - The LLC will end up owning two fully paid properties. I can then have the LLC borrow about 80% of the combined equity of those 2 properties for a third fully paid property.

I will appreciate the forum member's feedback and input.



@Pankaj Aurora , until I read your Option 1 subsequent 80% LTV strategy, I was thinking: why isn't he asking about borrowing against the paid off rental?

Now, I'll just say: congrats on your success to date, and keep buying winners! Cheers...

Originally posted by @Pankaj Aurora :

Thanks @Brent Coombs. That exactly is my default plan. But what are the downsides with option 2?

I suggest: Do all you can to make sure your Loan Officer is on board with your plan, and, try to ensure that the properties you buy can easily justify getting all your outlay back (even though they're only lending 70-75% ARV), and voila! You've successfully transferred most of the risk factors off to your Lender (because, you'd have none of your own money left in each deal, and, you'd still be be making money out of those "free" deals as well)! Go get 'em...

I'd suggest option #1, but there's a second step that you haven't addressed. If you get great deals on the property you buy, you do a cash out refi and pay off your heloc right after closing and continue that cycle over and over indefinitely. As long as you have access to a lender after your 10 conventional loans, the only thing limiting you is your ability to find deals.