How to Buy Multiple Properties for the Price of One!

Using a Real Estate Secured Line of Credit to Buy House After House After House!

If you are lucky enough to own one, or more, properties free-and-clear then eventually, you are going to want to get access to the equity in those properties.   There are very few investors who have an endless supply of capital so as you continue to grow your real estate portfolio, you will eventually need to consider strategies to access that equity.   

The "Cash-Out" Refi

The most common way to access capital in properties you own free-and-clear is to do a cash-out refinance.   This means you take out a mortgage on the property and the loan proceeds go to you.  You can then use those funds to purchase another investment property or use the funds for a different type of investment.   This is a widely used and effective strategy to access your captive real estate equity.  

The one drawback with these loans is that once you close on the refi and get the funds you now have a regular monthly mortgage payment to make that will take away from the cash-flow on the collateral property.   If you are a rental property investor, then you hate anything that reduces your cash flow!   You will want to make sure that you utilize the new capital from the cash-out quickly so that it is productive.  Hopefully, you will create more cash-flow with the newly accessible funds than you are losing with your new mortgage payments.

The Line of Credit

The other approach to accessing trapped equity is to utilize a line of credit secured by real estate.  This is our favorite!  Using an LOC is a strategic way to leverage existing real estate assets to generate significantly higher returns. This approach involves securing a line of credit using the equity in the real estate you already own as collateral.

If you own the property in your own name, the product you want to pursue is a Home Equity Line of Credit (HELOC).   If you own the property in an LLC, you will pursue a commercial line of credit.  Both of these LOCs differ from a cash-out refinance as they are considered revolving lines of credit which are similar to credit cards.  You can borrow up to the LOC limit, but you only pay interest on what you have withdrawn.   Your monthly payments are interest-only payments based on the balance of what has been withdrawn and the LOC interest rate.  You can payback principal a little at a time or in large chunks, so they are very flexible.     

One of the big benefits of this type of LOC is that you get to maintain maximum cash flow on the collateral investment properties while still getting access to the property’s equity.  If there is a period of time when the funds are not productive, you are not making any payments because when the LOC funds are not withdrawn you are not accruing interest. 

If there is a drawback to LOCs it is that the balance can only stay withdrawn for a finite amount of time, perhaps only 1-2 years.  This means these funds are not well suited for long-term investments.   In other words, you probably don’t want to use the LOC to buy and hold rental properties unless you have a specific plan to pay off the LOC balance with a different, long-term financing.  

"Rinse and Repeat" Lie of Credit Strategies!

To help and illustrate the incredible value of a line of credit, I want to share a couple of examples of how to use an LOC to its greatest advantage.

Rental Properties:      One of our strategies to buy rental properties at favorable prices has been to offer cash.   You can close on the properties faster because when a seller sees your proof of funds, they are often willing to take a lower cash offer to close quickly and predictably.    We have effectively used “Like-Cash” funds from an LOC to purchase rental properties quickly and then do a Cash Out Refi with longer term financing a few months later when the property is rehabbed, and a tenant has moved-in.   We then pay down our LOC with the cash from the refi.   Then… Rinse and Repeat!

Flipping:    The flipping version of this strategy is even easier!   Similar to rental properties, you can use the LOC funds to make “Like-Cash” offers on distressed homes to get favorable pricing and sometimes even fund the remodel.   The LOC interest rates are MUCH lower than hard money which keeps the holding costs of the flip down.    When you are done with the remodel you sell the property to a retail buyer.   You use the proceeds of the sale to pay off the LOC balance.  Then…Rinse and Repeat!

One of the best parts of this strategy is that while all of this “rinse and repeat” activity is happening, your original investment property, typically a rental, which is acting as collateral for the LOC continues to deliver maximum cash-flow.  So, you are basically able to invest and generate profit on two projects at a time even though you have only invested your own capital just once – in the original collateral property.   We account for all the incurred LOC interest costs and principal repayments to the new project, flip or rental, rather than passing any of those costs to the original collateral property.

Please see the below table where we summarize the differences between the Line of Credit and a Cash Out Refi to tap into the equity of your investment properties.

Line of Credit vs. Cash-Out Refinancing

	Description	Monthly Payments	Timeframe	Best to Reinvest In:
Cash-Out Refis	Loan to take cash out of free & clear or high equity properties	Regular Monthly Principle & Interest	Residential:  30yrs Commercial:  5-10yr	Long Term Properties such as Rental Properties
Line of Credit	Revolving LOC to get access to capital from free & clear or high equity properties	Monthly Interest Only Payments on withdrawn capital only Principle can be paid down at anytime	1yr – 10yr depending on lender	Short Term Properties such as Flips

Summary

We love the Line of Credit, Rinse and Repeat strategy!  By recycling the same capital, you can create a continuous cycle of investment and return. These strategies require diligent market research, careful financial planning, and efficient project management but can significantly accelerate your real estate business.  You can use this strategy to maximize the return on captive equity from free-and-clear investment properties and then use it, over and over again!   At the same time, the original investment property still continues to deliver its maximum cash flow!