Sweep strategy with HELOC?

15 Replies

I have two rentals that I bought in the last year, both purchased under a HELOC. I just refinanced one. After reading @davevanhorns email mentioned paying down mortgages with sweep accounts. I can't find much information about it in detail. Do I transfer my rent that I get each month onto my HELOC and then pay the bills from that. What is the best strategy here?

Hi @Michael McCarthy ,

In the comments of that article I actually link to a podcast with George Antone where he gives a more in-depth explanation, which you can find here.

http://reinvestorsummit.com/george-antone/

There’s also a transcription of the interview underneath the audio section of that page. So if you want to skip right ahead to it, you can search for the term “sweep accounts” and you’ll find his description of how you pay your mortgage down in 1/3rd of the time.

@davevanhorn I listened to the podcast last night and he explain its more so how to pay down your own mortgage with paychecks from your job. What if you don't want your paychecks to go into your HELOC that's more for business and I keep them separate, what's the best strategy when it comes to collecting rent? Park it in your HELOC and pay the bills out of there ? Have a spreadsheet knowing how much money is in the HELOC that is "yours"?. Just trying to figure out the best way to do it.

@Michael McCarthy

Yep, put the rent in the HELOC and the pay the bills from it. So it's no different, it's really the same strategy.

You're just treating the HELOC like a checking account except it can't go below zero. And when you get down to zero, pay down the 1st on your rental property or invest in something that pays a higher return than your HELOC rate.

@davevanhorn thank you for your reply, is the only downside that if the bank decides to not allow me to take money out of the HELOC anymore due to a recession for example I wouldn't be able to pull my "money" back out. Anything else?

@Michael McCarthy It's rare, but that did happen to me once after the crash where they reduced one of my 11 lines. Then I quickly maxed all the other ones after that, and put the money into a checking out. So then I had access to cash when most investors didn't.

Other than that, I wouldn't suggest operating on a thin margin with your HELOC. Just be aware of your reserves as well (the more the better).

Originally posted by @Dave Van Horn :

@Michael McCarthy It's rare, but that did happen to me once after the crash where they reduced one of my 11 lines. Then I quickly maxed all the other ones after that, and put the money into a checking out. So then I had access to cash when most investors didn't.

Other than that, I wouldn't suggest operating on a thin margin with your HELOC. Just be aware of your reserves as well (the more the better).

 one of the post crash lending opps I had was the flipper with a frozen heloc and no money to finish.. we did well helping those folks out.

my self I sweep every Friday so I am not paying interest over the weekends if I have anything out on it.. but its a true commercial bank unsecured LOC its not a heloc per say as in its not tied to my home or any property .. and it does not have a checking account.. I have to transfer to my checking the write the check from there.. helocs on primary residence need ut most care in management in my mind lest they get away from the borrower and next thing you know you sucked out all the equity and your wife is not happy LOL..

@Jay Hinrichs Haha you're right about that. Common sense, risk management, and having adequate reserves are all key here. 

But also keep in mind, not suggesting this should be done on a primary!

Originally posted by @Dave Van Horn :

@Jay Hinrichs Haha you're right about that. Common sense, risk management, and having adequate reserves are all key here. 

But also keep in mind, not suggesting this should be done on a primary!

using a primary as your piggy bank while it can work it can also lead to some heart ache.. and I think there are new tax rules that address debt above basis not sure though on that one..   but just like everything out there one has to look at all angles.

what does happen if your heloc got frozen how would you finish the project ???  and in the last go around and given that half of BP thinks we are headed for another crash or correction.. you usually find out your heloc got frozen when you try to access it and its denied they don't send a letter ahead time because if they did you would have a run on the bank.. kind of like what you did  LOL.. defeats the purpose of freezing them if folks evergreen them..   

Well I actually don't suggest in the original article to use a HELOC for a hard real estate deal, and it's for that very same reason. I even tell this story in my new book, where I had a friend who suffered a heart attack mid-rehab and because the HELOC was attached to his primary, it really put his family's home at risk. So not a fan of using them with your primary or even on a hard real estate deal necessarily. I mostly use HELOC capital for for fairly liquid investments (like notes or lending).

And my line was frozen when I received the letter too. But what I did was quickly tap my other accounts soon after before they had a chance to be frozen. Also keep in mind, these weren't all with the same bank either so I'm sure that had something to do with it.

Can someone tell me if it possible to pay your monthly heloc interest with any remaining credit from the heloc? If so what would this be called?

@Rich Hupper

Not directly, no. At least with most banks.

Indirectly you could theoretically write a heloc check to yourself and put it into your checking account, and pay your interest payment (or whatever you want) that way.

I still quite understand why it isn't better to just pay the mortgage principle off directly vs. using the HELOC as a checking account. Using the HELOC for alternative investments earning a higher ROI than the interest APR makes perfect sense. But I'm struggling to justify the use of the HELOC. I mean, I could see using it as an emergency fund and putting money in savings account toward the mortgage. But what happens if the bank decides to freeze your account and you have 3 HVACs go out? Scratching my head.