Investor · New Mexico / Texas · Member since 2021 · 6 posts · 1 vote
I have partnered with a capital investor to start BRRRR-ing properties. He already owns a rental property that needs some work. To begin, we are looking at BRRRR-ing his current rental property but we would be skipping the "Buy" part since he's owned it for a long time. It's not a total piece of crap, but it certainly has a lot of room to improve the value given the market that it is in. My question is - Can we use a HELOC to fund the rehab, then cash out Refinance the property at the AFR to pay back the HELOC and use the remaining funds to look for our next BRRRR project?
Our original plan was for him to fund the rehab with cash, then ReFi it and use the ReFi cash to go find our next BRRRR property. If it's possible, using a HELOC seems like a better way for him not to have to use his personal cash.
You can use a HELOC to pull out funds for the rehab and then turn around and refinance the property for the new ARV higher LTV to take out cash to pay off the HELOC and possibly more cash above that for the next project. You could also do a cash out refinance for the initial cash do the renovations and then do another cash out refinance after the renovations for the new ARV.
In some cases investors do (2) cash out refinances - one to take enough for the renovations and then next for the new ARV and to pull out more cash for the next project at the higher ARV/LTV. The second refinance is generally easier because you already have all of your documents and personal information on file and credit reports are good for (90) days to avoid multiple pulls.
lookup 'subordination'. it's easier to refi and then heloc. if you heloc and have a loan in 2nd position then trying to refi they will need to be willing to subordinate to the new loan. otherwise you will be stuck i believe.