HELOC Strategy to build capital - does this make sense?

[Michael Peters]

Hello BP Community!

I am 2 weeks from closing on our first property. We are purchasing it owner-occupied through conventional financing. As always, we believed we got a good deal. However, as we dug deeper, we are concerned about the tax implications if we pursue our original plan to flip as soon as we can. Our goal is to have 2 rentals by the end of 2020.

After researching and listening to some of the amazing BP podcasts, I had an Idea. I would love anyone's opinion whether the strategy below is doable and if it makes sense to expedite our investing.

Purchase Price: $285K (5% down, loan approx. $270k)

Rehab: $50k

ARV: $400k

Our goal is to use this property to build capital to get into rentals. I hate to wait the 2 years to be tax free on this sale, but understand we don't have great margins either. SO...

If our appraisal comes in around $400k as I hope. Could I then use a HELOC to turn our forced equity into capital and use that to purchase our first rental? With these numbers, I think I could pull out $90,000, (90% of ARV = $360,000. minus $270k,000 loan). In my head, if we were to profit $40k after our rehab costs I would be thrilled! Knowing that a lot of that will be eaten away by commission, closing, taxes, etc. Could I just pull it out as a HELOC and use that money instead? We could then stay in the home until the HELOC is paid down and we are past the 2 year window. I understand I will be paying for this money and it won't be straight profit, but it seems like a good plan to get the capital as soon as I can.

Does this make sense? Is this doable? Would love your advice! - Thank you.