Boost Your Investment Power with a HELOC

I first came across it back in 2009 when it was called the “Australian Mortgage.” It’s relevant if you already own a home or have a property you can use to take out a HELOC (Home Equity Line of Credit).

A HELOC can be a more complex product when it comes to investment properties because banks view it as riskier compared to a traditional mortgage.

Here’s how the principle works in our context:

Let’s say you own a home worth $2 million with a $1 million mortgage.
Instead of taking out a traditional loan to buy an investment property, you take $300K through a HELOC and purchase the property in cash using the HELOC funds.

Now, you technically have a total debt of $1.3 million: $1 million from your mortgage and $300K from the HELOC.
But is the $300K truly a static debt? Not necessarily.

If you treat your HELOC like a checking account and manage it accordingly, the debt fluctuates rather than remaining fixed. For example:

• Say you currently have $30K in your bank account. If you deposit it into the HELOC, your HELOC balance goes from $300K to $270K.
• Let’s say your monthly income is $25K. When your paycheck is deposited into the HELOC, the balance decreases further from $270K to $245K.
• Throughout the month, as you spend money, the HELOC balance rises again, moving back toward $270K.

The key idea is to keep the HELOC balance as low as possible because the interest calculation is done daily. There’s no traditional amortization schedule like with a standard mortgage.

By managing the HELOC actively, you can reduce your interest costs and leverage this strategy effectively.