SFR Foreclosure - BRRRR vs. HELOC financing

[Cynthia Oistad]

Hi!  I'm interested to hear feedback on two creative financing scenarios on the below fictional single family home property: 

• Investment property purchase price: $200,000
• Rehab Cost Estimate: $45,000
• ARV: $300,000
• 25% downpayment + closing costs+ rehab = $95,000

HELOC + Mortgage Option 1:  

1. Home equity line of credit for the $95,000 at interest rate of 5.5%.  Fixed rate.  $50 annual fee.  15 year term.
2. Open a traditional mortgage for the new investment property, borrowing $150,000 (75% of $200,000 purchase price) at 4.5% interest + closing costs.  30-year payback term. 

BRRRR Option 2:  

1. BUY: Open a new 30-year mortgage with bank on a paid-off rental home that we own (valued at $285K-$300K) for $200,000 to purchase the new investment property in "cash".  5.5% interest + closing costs for this mortgage.
2. REHAB: Take out a HELOC loan for the $45,000 rehab costs at 5.5% interest. At this point we would be about $253K invested into the deal after closing costs. Rehab the property.
3. REFINANCE: If all goes well and the fixed-up property appraises for $300K after renovations, then refinance the property for a new 75% LTV loan of $225,000 at 4.5% interest + $7K or so in refinance loan fees?
4. PAY BACK the $200K Mortgage and pay as much back as we could on the $45K HELOC loan (about $18,000). At the end of the day, we would own the new property and only have $27,000 in a HELOC loan left.

Want to know how to apply BRRRR strategy if we are using a mortgage rather than cash/private money lender/hard money for the $200K purchase price?  Are there bank penalties for paying off the 30-year mortgage that early (less than 1 year) after the rehab/refinance?

I'm interested to hear insights from this group as I try to learn more about creative investment strategies.

thanks!

Cynthia