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
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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