questions about HELOC
Hi All,
I purchased my primarily resident about 5 years ago, and thanks to the housing market in NY going up like crazy, I have a pretty big chunk of equity on it. I can take up to $200+K of HELOC at approximately 5% APR, and i'm thinking about using some of that to invest in properties.
I also recently went into contract on my first investment property (without using any borrowed funds). Purchase price was $80K, and estimated net cashflow after vacancy and capex assumptions (pretty conservative) is about $2300 ~ $3200 annually (based on what I can rent for, which ranged from $1000~$1100 a month). my upfront fees (including down payment, closing, fix up fees) is estimated around $32K.
If I borrowed $100K HELOC, I can purchase 3 of similar stats property. My monthly interest on HELOC is about $410 (or $4920 annually). Obviously, if I had $2300 annual cashflow x 3 that can easily cover the HELOC interest payments + about $2000 of free cashflow. That's $2000 free cashflow, so that's great, right? However, once the drawing period of 10 years end, my monthly payment would essentially double, and that point, with the current numbers i'd be cash flowing negative. So here are my questions:
1. Who knows if I will still have the investment properties, or what my rents would look like, or how much the values have appreciated in 10 years. Should I even think that far out, or should i aim for the $2000 cashflow that I could be getting now?
2. Do you use the extra cashflow ($2000) to payback the principal balance, or to maximize the benefit of leverage you only pay back interest only for the first 10 years?
3. Does only paying interest only on HELOC have negative impact on your credit scores?
4. Do you use HELOC in tangent to cashout refi on your investment properties, or should I stick with one or other?
5. What happens to interest rate/credit amount on HELOC if value of my home decreases significantly? can they call the balance back? Will my rates go up?
Thank you for your help in advance!