HELOC or 2nd Mortgage?!

[Ryan Plante]

Hey all!

I built the house my wife and I are living in a few years ago for $500k, and it’s currently appraised at $850k. So we’ve got a good chunk of equity I’m  wanting to leverage. I currently don’t have any rental properties, so this would be my first leap into the game.

My initial goal was to grab a HELOC on the house for about $200k (80% utilization), and use whatever amount necessary to fund the down payment and rehab costs and BRRRR the property I decide on, then use the money I refi out to pay off the HELOC. So there'd never be a balance being held for an extended period of time.. (is this a viable plan of action? I read just recently in the BRRRR book that you ideally pay cash for the properties with this strategy. Can I not just use traditional lending, then refi once the rehab and rent portions are done?)

However, an investor friend of mine said a 2nd mortgage would be a better play, because you could utilize more equity (call it 90% LTV) and purchase multiple properties and continue to just keep that 2nd mortgage, because half of your monthly payments will be going to principal, so carrying a balance isn’t a huge negative vs with the HELOC the payments are 100% interest, so you’d want to get the balance back to zero asap.

Thoughts or advice on what to consider with these options and how to come to a solid conclusion?