[LGS Champs]

I am looking to buy 3 cash flow positive properties over the course of the next 2-3 years for retirement.

I own a house that has a good bit of equity, so I wanted to try to use that to get these properties, but need some advice.

I think it might be best to use "Other People's Money" to do this. My plan is to probably:

Find a a good deal on a CASH FLOW POSITIVE investment property and put down 25% I have already secured from a Home Equity Loan on my primary residence.

If it is advantageous and I can get a better deal paying cash, pay the rest (and any improvements necessary) with money from a HELOC I have already secured on my primary residence. If not, slap a mortgage on it right away.

If I use the HELOC money, I will wait 6 months while paying interest only on the HELOC

After 6 months I will refi the property and pay off the HELOC.

Then repeat!

Is this a pretty common method? Any holes in this plan? What problems might I encounter getting the refi secured after the 6 months to pay off the HELOC?

Any better ways you can think of that might work better?

[AmotoXracer]

The first problem with your plan is that you may not be able to get the LTVs you need when you go to refi, which isnt really a big deal.
The second issue I see isnt so much a problem as it is a risk. You should be very careful and use extreme caution when using your primary residence as a source for risk capital.
Other than those things, your plans are a good as any.

[Brandon (NE Indiana)]

Ill just add that youre going to better off developing a relationship with a small, local bank that holds loans for their own portfolio. They will be able to be more flexible and aid your ability to quickly rinse and repeat this scenario. Therye also more likely to allow more loans than what most brokers are going to be able to help you with. You can also do blanket loans when it makes sense to do so.

Good Luck and keep us posted on what you do.

[Bill H]

I use HELOC....BUT ONLY...to make money off it.

I borrow at 3.00 percent and make up to 37.5percent off it.

Otherwise I would not.

[Jack5]

Originally Posted by Bill H

I use HELOC....BUT ONLY...to make money off it.

I borrow at 3.00 percent and make up to 37.5percent off it.

Otherwise I would not.

My HELOC with US Bank is at about 4.25%, who is offering a HELOC at 3%

[John_Corey]

Jack,

The theory is fine.

1. Your credit score will take a hit when you put large sums on the HELOC. Even if the credit score does not move at the credit bureau, lenders do have an internal scorecard. They might take a view that you are a higher risk that you expect.

2. If you follow the process you outlined, after the 1st deal you will have 25% tied up in the first investment property. After property 2, you now have the combined down payment (25% times 2 more or less). This means you will be building up debt on the HELOC or reducing your cash. This will start to limit your ability to do a deal, to obtain financing on favorable terms, etc.

3. You might follow the suggestion of working with a local bank. They could replace the HELOC and offer more flexible terms. Likely the HELOC will cost a bit more. At the same time they could be better suited for the overall process even if they are not the top option for the HELOC.

[John_Corey]

Originally Posted by Jack5

My HELOC with US Bank is at about 4.25%, who is offering a HELOC at 3%

The difference between the two HELOCs over 6 months is rather small. More important will be any one off fees, limitations on the HELOC or how the lender reports to the credit bureau.

[Bill H]

Originally Posted by Jack5

My HELOC with US Bank is at about 4.25%, who is offering a HELOC at 3%

I use my credit unon. Started this one about two years ago...it is ARM and has stayed at 3.00 so far.

John, my credit rating has not moved....still above 800.

[bambam]

LGS, have you thought about using a self directed IRA to grow it tax free since it is for retirement anyway?

[John_Corey]

Originally Posted by Bill H

I use my credit unon. Started this one about two years ago...it is ARM and has stayed at 3.00 so far.

John, my credit rating has not moved....still above 800.

Well done.

Two things. How you use the credit will have an impact if the lender reports.
Second, credit unions have been known to not report like other creditors. I am not saying this is going on with your CU Bill. The impact will vary based on the circumstances.