New Invester - Reading for a couple of years, ready to take the next step

[Joshua Nuss]

Hello, I have read several books including Buy, Rehab, Rent, Refinance, Repeat by David Greene, How to Invest in Real Estate by Brandon Turner and Joshua Dorkin, and The Book on Rental Property Investing by Brandon Turner among others. I think I understand the basic process, and am most interested in the BRRRR method. I have a house, no kids, good income, no debt. My house is probably worth $265,000 on the lower end (3 bed, 2 bath). I also max out my 401k, HSA, and contribute to another index fund weekly. My question is I have about $30,000 in cash that I am comfortable using, but would like to keep that and see if I can get a home equity loan (since it is paid off and I could get at least $200,000) and use that to purchase my first rental property. Is this a good idea, and if so, how exactly does the re-finance portion work? I never really understood that. A bank will give me a loan (if its ARV is good) and I can use that new loan to pay off the original home equity, and buy another home plus pocket the difference?

[Tanner Lewis]

I would only do a HELOC if you have a mortgage and are locked in at a low rate from the COVID era; if a property is free and clear, I would just do a cash-out refinance. You'll be able to get a lower rate on the debt and there is no balloon payment. Since it is owner-occupied at the moment, I would go conventional and then use that plus hard money/DSCR to purchase your next deal.

Cash-out refinances work the same way as acquisitions. Instead of using the purchase price/appraisal to value the property, they rely on just the appraisal.