On my previous blog entry about HELOCs I forgot to mention a pretty important point.
You use a HELOC as an Asset Protection Strategy. Suppose someone decides they want to sue you. The first thing that happens when they go to a lawyer is the lawyer runs an asset check against you. He finds you own several properties. If you have 20% equity on each property, the lawyer is much more likely to take on the case for free without a retainer. However, if you’ve mortgaged them to the hilt, he’s going to ask for a big retainer and the likelyhood of a frivilous lawsuit drops dramatically.
Thats where a HELOC comes in. If you’ve put 20% down on a property, you atleast want to put a HELOC on it so that it APPEARS as if you have a 2nd loan. You may not have drawn a penny out of it but on paper it looks as if you’ve taken that money out.
Besides, if you do get sued, you can use the HELOC to pay for your attorney’s fees!