Using HELOCs to finance 5 condos

[Adam Demchik]

I would appreciate some opinions on my strategy below to purchase 5 condo units. First the numbers:

Approx. purchase price - $35,000 each
Type of units - 5-10 years old, 2 bed 2 bath
Rental value - approx 750 per month (satisfies the 2% rule)

I don't want to deal with getting a traditional mortgage so my plan was to purchase the first unit with cash and then take out a home equity loan/line for 80% of the value of the condo (28,000) and use this plus $7000 of my own cash to purchase the next one. I would repeat this process for all 5 units. In the end after purchasing all 5 units I would have a total cash outlay of $63k and a yearly gross income of $45k. My return on cash would be about 30% after applying the 50% rule and paying the mortgage payment.

Please let me know your thoughts on the above plan. thanks!

[Michael B.]

I'm guessing that you won't be able to make this work.

A HELOC of a very cheap condo is tough to make work. Just not that many banks willing to play. Some don't play in investor owned properties, some don't play in condos, and some don't play in very cheap properties. You've got to find a bank that will play in all 3. And do it multiple times. Good luck with that.

Not saying it can't be done. Just make sure you understand your bank's guidelines before you start the process. Else you're likely to end up paying cash for the first one and stopping the plan there.