Sweep strategy with HELOC?

Question

Dave Van Horn · Answer

@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.

Dave Van Horn · Answer

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.

Dave Van Horn · Answer

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.

Dave Van Horn · Answer

@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!

Frankie Woods · Answer

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.

Dave Van Horn · Answer

Sure thing, Rich! Happy to help.

Rich Hupper · Answer

@Dave Van Horn

Okay gotcha. Thank you Dave.

Dave Van Horn · Answer

@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.

Rich Hupper · Answer

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?

Sweep strategy with HELOC?

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