HELOC To Buy Investment Property: Step By Step Masterplan

hey what’s up everybody it’s Sam here so
you’re wondering how to use a HELOC to buy investment property right so in
this video I’m going to share all my tips and tricks on how to buy a an
investment property using a HELOC as well as the pitfalls to avoid when using
a HELOC to buy an investment property hey what’s going on this is Sam Kwak on
the Kwak Brothers Real Estate investor and you want to buy an investment property well
first of all congratulations on that decision because not a lot of people
want to buy an investment property or do don’t know why they should write because
you and I know that we can build net worth cash flow income all sorts amazing
things so chances are if you’re watching this you are an amazing person
but you know what’s also amazing is clicking like on this video and helping
us out there YouTube algorithm because it really does help us get this video
out to as many people as possible so go ahead and click on like on this video it
does help us a lot now people we get to the main strategy
part of this this video I do want to give you a word of caution as well as
pitfalls to avoid when using a HELOC first of all I am NOT a financial
adviser I am a real estate investor I’ve been buying properties and selling and
so on so make sure you understand that I’m not giving any sort of financial
advice this is primarily my opinion as to how I would acquire properties as
well as how I’ve been doing it one of the word of caution or the warning that
I would give you guys is if you already have a HELOC or you’re looking to get a
HELOC my suggestion or opinion is to use less than 50% of the total HELOC limit
so if you have $100,000 HELOC limit use only $50,000 or less and this is more so
have to do with protecting you guys from a possible recession and it’s negative
impact another thing is that don’t exceed more than 70% of the combined
debt when it comes to your home or your residents so if you let’s say have a
home or your primary residence is worth let’s say $100,000 we don’t want to
exceed more than $70,000 in total debt on this home value again going back to
protecting yourself from a possible recession we don’t want to have to owe
more than what our our home is actually worth this is all to protect you guys if
you don’t wanna get too aggressive right we want to stay conservative but at the
same time we want to be able to grow so let’s go and dive right into the
strategy and as you guys know I love illustrating I love drawing so make sure
you guys can see this let’s say we have a HELOC limit of hundred thousand
dollars so a HELOC works very similar to a credit card so we have limit and just
like what I alluded to earlier is that we
don’t want to exceed more than fifty to fifty percent of the usage on the heat
lock limit when possible so we’re gonna go ahead and take that $100,000 limit
and buy a rental property an investment property I have $50,000 and I know some
of you guys who live in California or New York you might be saying well that’s
impossible there’s no properties worth fifty thousand dollars around here where
do we get that well chances are if you are in California or New York or some of
these highly appreciated states you’re probably gonna have a higher HELOC limit
anyways so half of higher HELOC limit could mean that you can buy a larger
priced rental property or investment property so stick with me here this is
just an example if you do end up buying a fifty thousand dollar property chances
are you might run into those in Illinois Iowa Ohio Indiana million in the
Midwestern state another word of caution is that you may be tempted to use the
HELOC as a down payment for the next rental property well I’m not so big into
that either because again you’re gonna have to have more debt right you’re
putting you’re using debt to get another debt right we don’t want that happening
so the optimal situation will be to take that $50,000 in this example and just
purchase a property outright no other liens no other debt so let’s say we went
and bought the property for $50,000 outright there’s no other lien of itself
now we have a $50,000 balance as you guys can see right there right but this
property now is generating a thousand dollars in terms of cash flow okay and
it’s just an example I’m just making the numbers up okay there we go thousand
dollars a month that’s going back now if you guys know our strategy how to pay
off your mortgage within five to seven years you guys will know exactly why we
bring the income back to the HELOC because we want to pay that $50,000 off
okay completely with the existing income that you already have so what the exist
income plus a new thousand dollars income we’re now getting to pay off that
$50,000 balance even faster and quicker than before let’s say time goes on you
pay off the $50,000 complete now we have back two hundred thousand dollars of
open limit so same thing we’re gonna go and buy another rental property around
the same price fifty thousand dollars okay
created another income by a thousand dollars so now we have two thousand
dollars coming in in terms of our rental income that’s going back to the
HELOC and what’s happening here is it’s we’re snowballing right we have more
income to pay off the the HELOC faster so next time we buy we’re getting there
faster faster faster it’s it’s sort of an exponential growth that we’re gonna
see so buy more properties final property so I’m gonna actually clear
this drawing out and make this a little prettier so we got the heat lock again
boom and with this heal out we bought several
properties okay we bought like three that’s going let’s go four and assuming
that each of the property is bringing us thousand dollars a month in terms of
rental income this right here is about four thousand dollars of rental income
that’s going back to the HELOC paying it off faster buy another one pay it off
faster so you can get to a point where you might have ten thousand dollars a
month in revenue from the rental properties what that means is every five
months now you can go and buy a new property now it’s gonna be it’s gonna be
even more so you guys are gonna see this exponential growth this is a phenomenal
way to transition from completely paying off your home your home residence just
now start buying rental properties to build that income to build that
financial muscle so to speak now here’s how to how to take this up and dollar
knotch and this is completely up to you guys
this might be a little bit too aggressive but this could work one thing
you can do now is now that you have some asset you have net worth right you have
more properties that are paid off the banks are going to start to look at this
and say you know what you have some Bank ability you have some asset you have
income coming in you’re stable you have paid off homes what you cannot now start
doing is take one of these rental properties and get a HELOC on that okay
I know some people might say well isn’t that impossible like you can’t get a
HELOC on a rental property well it’s true you can get a HELOC on a rental
property but what tends to happen is that the banks are going to look at your
overall financial situation they want to see that you have a lot of assets you
have a lot of liquidity they want to see that you you paid off a lot of things
they also want to see your experience right because you have some experience
now that’s pretty good so you’ll you’ll be able to get a HELOC
on a rental property chances are not as a big of amount but you you can still
end up getting a good chunk of a HELOC on your rental property now with the
c-loc we can of have it sub strategy now we can go
and use this hillock to buy more rental properties look at that boom right and
this all the income from the rental properties going back to this zealot to
pay this off right and this this right here is still paying off the HELOC over
here and you’re buying more properties here and you’re buying more properties
there so you’re literally stacking right yeah you’re a growth is much more faster
than ever before so you’ve been doing this I’m gonna fast forward let’s say
you were able to buy 20 rental property single-family residential let’s say okay
rental properties single family rental properties okay now what you can do is
now we have twenty separate properties you can now sell this portfolio
okay sell it and you can do what’s called a 1031 security exchange so a
1031 security exchange is a change of investments that helps to defer capital
gains when selling those properties because chances are you’ve pulled onto
this for some time now you may have some capital gain taxes that you have to pay
so what you can do is sell the property 1031 exchange – perhaps a 20 unit guy
see that 20 unit apartment so you went from 20 separate doors 20 separate
properties to one roof 20 unit apartment building and you deferred your capital
gains taxes so you you’re taking the proceeds from your 20 Rhett 20
properties and rolling it into a 20 unit apartment building all free and clear
you guys see where I’m going with this so this is pretty cool so this means
that less management cause less of maintenance cost because everything is
under one roof it’s using one water heater or separate water heaters but
it’s easier to manage one property it’s got 20 tenants living in it versus 20
separate properties of 20 separate tenants so this is gonna be a phenomenal
way for your sort of transition to finally becoming financially free you
could start taking vacations if you spend more time with your family this is
this is the phenomenal retirement strategy going from having a small you
know one little rental property to having 20-year in a par and building in
a very conservative fashion we’re not going to crazy we’re not going to
aggressive we’re using debt in a smart way we’re not going past
percent of the limit with the HELOC we’re making sure that we’re not like
leveraging to get leverage meaning we’re not using debt to getting more debt
we’re making sure that we’re making we’re staying $50,000 in debt at it at a
time so this is a very fairly conservative way to buy investment
property using a HELOC so if you’ve been wondering how do I use a HELOC to start
growing how do I use a HELOC to start buying an investment property boom there
it is right from going one rental property to 20 units of course I know
some of you guys are gonna do way more than 20 units right you guys are gonna
go 40 units 50 units which is awesome I hope that you guys do so yeah I hope
this illustration kind of give you an idea what’s possible using a HELOC to
buy an investment property or using the heel out to buy and a rental property in
general so if you guys learn something here in this video go ahead and click
like on this video if you haven’t already be sure to subscribe to our
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about real estate investing using a HELOC and ultimately growing your cash
flow empire so guys thanks for watching and tuning in I’ll see you guys in the
next video

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