Boomerang HELOC method, is it possible?

Question

I've been wondering, now that I have accumulated some equity in my current home, could I get a HELOC and use those funds as a down payment for a property. Then assuming all things being even, I am able to secure the property and put a renter in it, can I then refinance the property for the total of my down payment plus the rest of the mortgage so that I could quickly pay back my HELOC. Also aside from any closing costs I am uncertain if I would need any money for the refi?

However if this is even feasible, that would mean I could then use my HELOC rather quickly again to go out and acquire another rental property. Hence the name Boomerang HELOC method. In my area property values are stupid high, but rental potential is also high, so I am looking for a way I could begin investing without waiting till I'm 130 years old. I am also not comfortable investing in a real estate market far from where I live because this is the only area I am very familiar with. I am looking in the NoVA D.C. MD area.

Any insight, advice, or criticism is greatly appreciated!

Whitney Hutten · Answer

@Wilhelm J. Lieto What you are describing can work. I do that regularly to fund my BRRRR projects. HOWEVER, you need to ensure you can qualify for the refinance WITH the HELOC out because it will inflate your DTI. This is why I use hard money to fund the purchase and construction, my HELOC for the down payment, because the small down payment doesn't tend to hit my DTI and mess up my refinance. Just food for thought.

Here is a guide to help you "choose your own adventure" to fund a BRRRR (even when using cash/HELOC monies).

Wilhelm J. Lieto · Answer

@Heather Skowronsky Thank you so much the useful information. I did not know all of that and definitely something to consider! I will continue to do more research to cover as many corners as possible, but like everything in real estate, there's always a surprise. I have a friend who is a realtor, I would have to consult with her to try and find that good deal. your numbers were pretty spot on for the area btw.

@Paul Wachtler thank you for the response, it is very similar to the BRRRR method. basically I'm also trying to find a way to do this without using a hard money lender or come out of pocket for 20 something % for a traditional loan. I will definitely look up that book, thank you for the recommendation!

Whitney Hutten · Answer

@Nick Gann Very true... it's what I do now with all of my projects.  Just keeping my answer relevant to the topic/question at hand.

Nick Gann · Answer

@Whitney Hutten

You could also look at lenders that base the refi on DSCR instead of personal DTI. Rates may be higher, but you free up funds for the next deal. And if you're finding good deals then it'll more than make up for the rate differential.

Nick Gann · Answer

@Wilhelm J. Lieto

Been doing this for awhile. It's the only way I buy.

Odie Ayaga · Answer

The other thing you're missing that is different from a typical BRRR is you don't have any provision for rehab so you would have to be getting a property at such a discount that you don't even need to do any work to have a much higher value (i.e. the distress would have to be non-property related such that you could purchase for say $100K and sell tomorrow for $150K). That can be a difficult sell to conventional lenders who may not want to refi you so easily in such a situation. It's generally more difficult to find such properties and likely will require more work than properties where the distress is in the property itself.

It also doesn't matter where the money comes from to make what you said work so long as it's generally available once refunded so it can be a JV partner, cash, a credit line, etc.

Heather Skowronsky · Answer

Hi @Wilhelm J. Lieto be sure to speak with your lender about this.  You can use the  money from your HELOC as a down payment on an investment property - no problem.  However when you try to refinance the investment property (cash out refinance) you are only able to take out a maximum of 80% of the fair market value of the home - so that would also have to account for the existing mortgage amount you owe on the property.  So using Nova's market numbers, lets say you find a townhouse for $300,000.  You have to put at least 20% down (25% down gets you a much better rate though, so you'd most likely want to do 25% down) =$60,000 down payment.  Loan amount = $240,000.  The market value of the home would have to be about $385,000 or higher to be able to recoup your $60,000 downpayment/repay your HELOC.

So you would have to find an off market deal for sure.  Anything and everything on the market now is selling (going under contract) within days, sometimes hours.

Paul Wachtler · Answer

Hi Wilhelm, it sounds like the BRRRR method is what you're looking for.  You could use the HELOC from your current home to buy and rehab a place, then you could rent it out, refinance, and pull your money back out so that you could do it again.  I'd recommend checking on youtube for BiggerPockets videos on BRRRR and also David Greene's book on it as well.

Boomerang HELOC method, is it possible?

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