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