HELOC VS pay cash for buy and hold.

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HELOC VS pay cash for buy and hold.

Bryan Fean
Rental Property Investor · Wilmington, DE · Member since 2019 · 11 posts · 1 vote

Would it make more sense to use a HELOC or pay cash for a buy and hold? Assuming you had enough cash in the bank and enough equity in your home to do either. The only goal is the best long term financial situation. Would keep the rental for at least 10 years. And may buy another property or two, but not looking to build an empire or quit my day job.

If you used a HELOC you would not need to use cash on hand. But if I had cash sitting in my bank account getting 2%, I would aggressively pay down the debt anyway. That is part of the equation. I want to get a better return on my money than the bank.

If I paid cash, it would deplete my savings, but I could always rap a mortgage on it or maybe get a HELOC on it if I needed the money. Maybe BRRRR...

I guess either way you are not getting good cash on cash return because you are not using leverage. But as I said I want to get this money working more. Although would you consider HELOC money "cash "?

Am I missing something, or is it a push?

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  • Brent Paul
    Rental Property Investor · Shakopee, MN · Member since 2015 · 985 posts · 374 votes
    6y

    I personally like the leverage of having both a HELOC and cash. I would use the HELOC first as I don't want all my cash tied up on a property in case something expensive needs to be fixed or for whatever reason I need access to cash fast. In the last market crash the HELOC's were froze so when possible I use them first.

    You could pay all cash on a property and cash flow right away.  However it could take you over 10 years to get all your money back.  Lets say you are buying 160k properties.  If you put all your cash into that one house you have nothing left to invest.  Now if you instead of paying cash one that one property you put 20 percent down on multiple.  For the 160k I could buy 5 properties instead of just one.  In the 10 years it took you to get your money back on that one property I have owned 5 properties for 10 years.  They all have some principal paid down with the loan over time.  This is how I would scale.  Granted I only need about 10 properties cash flowing to reach my goal.

    There is nothing wrong with paying cash for your properties. It does offer you some assurance if the market does crash.  You kind of have to weigh that out what you are comfortable with.

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