BRRRR with HELOC in Baltimore MD?

[Dan W.]

What is the thought? 

I live near Silver Spring Maryland and I own my own single family house and have some equity in it, and also have a HELOC on the property which is at $0. I am wondering what the downfalls would be to going and buying, say a townhouse for $65k, invest $20k into it, have $95k in it after closing and holding HELOC % fee's (rough numbers), refinance it for $120k with a conventional mortgage and rent it. HELOC back to $0 in 3 - 4 months.

Is there any downfalls to this? I have spent probably years researching and learning real estate and have never pulled the trigger yet. That's why I'm asking for advice. I reckon If I did this, I could probably get a property management company to manage the property and cash flow about $250 a month. 

This would probably be in the Baltimore County, Anne Arundel County area. I'd prefer to keep out of the city but maybe that's just me being paranoid. 

[Jaysen Medhurst]

@Dan W., this is a very common strategy for purchasing an investment property. Just make sure you're very confident in your expected rent, ARV, and renovation costs. Being off on those is where you can get burned. '

Also, you'll have higher holding costs due to the HELOCs interest rate. Make sure you're taking them into account.

Banks typically want a 6-month seasoning period before they'll lend based on a new appraisal. So, you're not going to pay back the HELOC in 3-4 months. Start talking with banks now so you understand their terms and underwriting requirements.

Finally, can you share a pro forma analysis of the kind of deal you're considering? The community will check your numbers and help make sure you're not forgetting something.