BRRR method, HELOC instead of Refinance?

[Pat Jackson]

First off, I agree with @Brandon Hall, it should be the BARRR method!  If you haven't read this article, do so.

https://www.biggerpockets.com/renewsblog/forget-br...

Here's a quick recap on my situation:

My property in Missouri is about rehabbed.  Between purchase price and rehab I'll be in ~62k (all cash).  The house will comp 85-90k.  I'll go with 85k to be on the safe side.  It should rent out for $800 a month.  When I bought it, I was planning on being on title 6 months, and then doing a cash out refi for 75% of the appraised value ( and getting back more or less what I will have in it).  But, I'd have to wait 6 months.  And I'd then have a big fat mortgage.

So after 6 months, I can cash out refi, have a mortage, and after PITI, account for property management, saving for cap ex, repairs, etc, I could cash flow $100 a month. I consider this a good deal, having a property with no money left in and netting $100 a month.

However, when I went to speak with Bank Midwest, they offer a HELOC on investment properties. Variables to consider:

1. HELOC amount up to 75% LTV

2. Interest only payments for the first 10 years, first 12 payments 3.49%, after that 4.25%

3. HELOC can be offered immediately after rehab is completed, they do an appraisal that I'm on the hook for.

Isn't this a better deal?  I want to acquire more cash flowing properties, and am interested in delayed financing.  This way, I will be paying less interest than a mortgage (I can't find an investment mortgage for less than 4.25%), and my property will be cash flowing ~$400 per month instead of $100.  Am I missing something?

[John Ching]

Hi Pat. I'm an investor here in Springfield, MO and I also have a background in mortgage banking. 

Personally, I'm a big fan of HELOC or interest-only programs for my investment properties. My reasoning is that I like having a lower required monthly payment in order to maximize my monthly cash-flow.

Remember, you can always reduce your principal balance at any time with a HELOC (or an loan for that matter) simply by making a, "principal reduction" payment. The difference is, with a regular amortization loan, your payment remains constant throughout the life of the loan.

Make sure that Bank Midwest HELOC rate is fixed. Most HELOC's interest-rate is tied to prime and will fluctuate when the Fed raises rates.