A couple making $28,000 a year in passive income from real estate used an out-of-the-box approach to buy their first rental

Marques, right, and Shyra of Black, Married & Debt Free outside one of their rental properties. Black, Married and Debt Free

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• Marques and Shyra of Black, Married & Debt Free wanted to work towards financial freedom.
• So in 2018, they used a home equity line of credit to buy their first rental property in cash.
• Now they own five rentals that bring in $28,000 a month in passive income.

Married couple Marques and Shyra, who blog at Black, Married & Debt Free and don't disclose their last name online, have been building a portfolio of rental properties since 2018. After starting their debt-payoff journey, which began in 2015 and included crushing $33,000 of credit and student loan debt, as well as the mortgage on their home near Sacramento, California, the couple decided their next big-ticket goal would be investing in rental properties.

To date, they've amassed five rentals, which rake in $28,000 a year in passive income after expenses. However, to pay for their first rental property, they decided on an out-of-box approach: tapping into the equity in their Sacramento condo to buy the home in cash. 

They used a HELOC to purchase the rental property  

Once Marques and Shyra knocked down their debt, they saw real estate as a path to financial freedom. 

"Even though we were debt-free, which impacted our quality of life, the next day we were stuck in traffic, going to work," says Marques, 37. "It didn't lower our stress level, and we didn't achieve financial freedom. We wanted more freedom with our time and choices."

While the couple could've saved for a down payment for their rental property, it would've taken  months, if not a few years.

After doing their homework and mulling over different options, Marques and Shyra decided to tap into their primary home's equity to buy their first rental property entirely in cash using a home equity line of credit. They borrowed $120,000 at a rate of 5.5%; it was 2018.

"We felt that a HELOC would give us leverage and negotiation power that traditional financing would not provide," says Shyra, 36. "We would get a better deal and higher cash flow." 

A HELOC is a revolving line of credit, and is backed up by your home, which serves as collateral. HELOCs can be used for a variety of things, such as to fund home improvement projects, consolidate debt, foot the bill for higher education, or to pay for medical bills.

Similar to a credit card, you can take out different amounts and are responsible for paying off the balance. HELOCS also typically have a draw period, which is a set amount of time where you can tap into your credit line. 

They were able to close on the process quickly

After the couple obtained the HELOC, which took about 30 days, it took about two weeks to complete the second major transaction, the rental home purchase.

"Because we used a HELOC, we had access to a form of cash," says Shyra. "And as more sellers are looking for cash buyers, the closing process went by quickly." 

On top of a quick close, buying in cash got them a better purchase price. While the three-bedroom, one-and-half bath home in a suburb in Greensboro, North Carolina, was listed for $110,000, the couple put on their negotiation hats on and managed to get it down to $104,000.

"Compared to a conventional loan, time is working in your favor," says Shyra, explaining that the time it takes to underwrite a traditional mortgage could have slowed down the deal. With the cash from the HELOC, the home purchase was just between the seller and the couple. 

They prioritized making a profit

To avoid getting swept up in the allure of a particular rental property, Marques and Shyra focused on making sure their rental income covered both their monthly HELOC payment — about $700 — along with any additional expenses of homeownership. "You have to pay it back — with interest," says Marques of the HELOC. "It's not a gift.

In choosing the location for their rental property, they looked for a turnkey home that was pretty much move-in ready for tenants. They live out of state, so they didn't want to oversee major projects from afar. Another criteria? Homes outside of major cities that were in growing areas with thriving economies and booming industries.

Lastly, the pair made sure to land on a HELOC with a fixed interest rate versus an adjustable rate. That way the HELOC payments wouldn't fluctuate. "If you're buying a rental property, you can't go up and down in your rent," says Marques.

They have a reliable out-of-state team 

The couple, who now have three properties in North Carolina and two in Alabama for a grand total of five, made a point to build a trustworthy, experienced team to manage their properties. This team consists of a property manager, lender, real estate agent, and a general contractor to oversee all maintenance and repairs. 

"Having a team in place gives us peace of mind," says Marques. "We don't worry about our properties, and have confidence that our tenants' needs are being met as well as the needs of our business."

Another perk of having a solid team to take care of their rental properties is the couple rarely needs to travel for in-person visits. However, they do make it a point to see every property they buy before they hand over the keys to the property manager. 

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They used 'extra' money from the HELOC to buy their second rental property

Since the couple took out a $120,000 HELOC on a home with a $104,000 price tag, they intended to keep the remaining $16,000 untouched for maintenance and repairs.

But they ended up not needing to tap into the remainder of their HELOC, so they used it toward a down payment on a second rental property, which they bought using a conventional home loan. 

The beauty of a HELOC is you can make different transactions with the same line of credit, explains Marques. For instance, if you take out a $100,000 HELOC, you can use $10,000 of it now, $10,000 later for something else, and so forth.

All in all, Marques and Shyra are happy they made the decision to purchase their first rental property with a HELOC. They loved how smooth the process was, and how buying a home with cash gave them leverage and more negotiating power. 

"It was an adventure to go across the country in a plane to invest," says Shyra. "We do it in a way that limits our risk while receiving a lot of the reward. And we've been able to reap the benefits of appreciation."