Using A Home Equity Line of Credit

[Michael Corbin]

Hi All,

What is the best use of a HELOC ? or put another way, what shouldn't a HELOC be used for and why. Any thoughts, ( preferably from someone who actually used or is using a HELOC ).

[Bob Ritner]

A HELOC is one of the few gifts from the bankers to the small investor! Below are some of the uses and advantages over other financing methods:

1. Facilitates an instant cash offer on another investment property, which sometimes gives you an advantage over someone with a loan contingent offer

2. Gives you the ability to make a cash offer without having to sit on a pile of unused cash or pay interest on a cash-out loan while waiting for a deal.

3. If you use it to purchase another investment property, your cash flow increases as you pay it down, unlike a traditional mortgage. With a HELOC, your payment decreases as you pay the loan down. With a traditional mortgage, you payment remains the same until it is paid off, regardless of how much you pay it down.

4. The interest on a HELOC is far less than a hard-money loan, but slightly more than a traditional mortgage.

5. You can use the HELOC for an investment property purchase, then do a cash-out re-fi on the property with a traditional mortgage. With the proceeds from the traditional mortgage you can pay off the HELOC, then repeat for the next property.

HELOCs are a very flexible vehicle for investment property purchases. I have used them in one way or another on 5 of my buy and hold rental properties. I now have three separate HELOCs that are ready to be deployed if the right opportunity arises.

Good luck!