Use of HELOC Funds as a Real Estate Investment Tool

[Frank Costa]

What rules/restrictions are there regarding the use of a HELOC for the down payment of an investment property? What if I where to find a SFH that's a viable "read to go" long term rental (no BRRRR strategy required), can I use HELOC funds for the down payment when I approach a traditional lender to finance the deal?

Assumptions: HELOC on primary residence, excellent credit, full time employment, 20% down (HELOC funds), 80% balance in a 30yr fixed.

Thanks, Frank

[Todd Powell]

@Frank Costa I can tell you, this has been in my wheelhouse for sure! I have used my primary home since 2002 and have increased my interest only line of credit MANY times over the years. I also had HELOCs on many non owner occupied with B of A before they wiped them out in the 2009-2010 crisis. What I can tell you is that some will say this is risky, but its been the cheapest money I can get my hands on. Some investors will say, never use or risk your own home, but I think every investment has some risk to it. Other investors will say to leverage every penny into real estate and using your HELOC is smart.

I have used my HELOC to pay cash for fixer properties countless times and using the same money over and over again. I also have used it to buy into a 72 unit with a 15% ownership, costing me $202,500 of the down payment. I then sold off some older triplexes to pay this off, and increased my cash flow.

This last year, I bought a 5 plex and a 8 plex 50/50 with my older son and I used 100% of the down payments from my personal residence HELOC, and the lender fully understood what I was doing. It happened to be MAPS Credit Union in Oregon, so my purchase was in a sense 100% borrowed money, or NO money down. I also bought 3 different 4 plex units, all of which were fun down, using these funds. My down payments and all rehab were 100% HELOC funds. I have created lots of cash flow and massive appreciated values in these run down buildings.

I obtained this HELOC out two years ago from KeyBank with their 90% LTV at prime minus .25% for a 15 year draw period. It was the best I could find out there. Again, for most of these years, I used Bank of America until they made a West Coast decision back when in the bad economy and I will never use them again.

I have made a lot of money in the last 15 years using my HELOC, which was only $60,000 to start out with. Today, its $421,000. These are just my thoughts and some would disagree with me, but I didn't know any other way to make the bold moves which have made me money time and time again. My intention is to refi when rates look attract on the 4 units or less. The bigger commercial are already set in motion with a different structure.

I hope this helps, but the key if buying a dollar for .60 cents which many say is impossible to do. I would disagree, it just takes a lot of work to find them. If you buy right, the cash flow helps in doing 100% financed deals out of the gate! Hope this helps!