100% Financing using a HELOC

[Mathew Scott]

Wondering what people's opinions are on 100% financing (80% mortgage, 20% HELOC)? Being 100% financed would basically eat away any possible cash flow for the properties I'm looking at because of the HELOC interest. Might even end up being slightly negative month to month ($50-100). Say I'm out of pocket $100/month ($1200/year) but my mortgage paydown is $7k/year, that's a 583% return. Compare that to putting in 100k (out of pocket) and you get a 7% return.

I'm looking for advice on whether or not this is a good idea, pros and cons. What are the dangers of being 100% financed? Based on numbers alone it seems that being negative on a property each month is still very worth while (if you can afford it). It would take 83 years for $1200 per year to equal an all cash down payment of 100k

[Thomas S.]

I always use a HELOC to create 100% financing purchases however I do not buy properties that do not have positive cash flow with 100% financing.

The reality is that to achieve true positive cash flow it must be calculated based on 100% financing. Equity in a property is actually buying cash flow which is not the same thing as a property that is generating positive cash flow.

Investors trick themselves into believing they have positive cash flow by throwing cash at a investment. Every property can have positive cash flow with that investment philosophy.

My advice is never invest in any property that has negative cash flow with 100% financing.