How should i finance this deal?

[James Perdomo]

I have a deal about to go into contract. I am trying to decide on how to finance it. The agreed offer is $50K and it needs about $35K in work that will probably last 2-4 months. ARV is $130K

Option A: I just got approved for a line of credit secured by my other rental property which i own free and clear and is rented for $1100. The LOC was approved for more than enough than i need to close but the monthly interest payments would be around $3250 which i can't afford. I looked at this option because i did not want to commit to a 30 year loan. My plan was to refinance to a long term loan to pay off the principal of the LOC, but if i need 6 months of seasoning, that would cost me close to 20K in interest (makes me sick to think about). Although, having the line open after refinancing would be a plus to have, but it is a lien against the property.

Option B: Cash-out Refi my rental property for a much lower monthly payment estimated at $460 (incl. insurance and taxes and at a 6.5% rate which i know is high but title is in the name of my LLC). The rent will easily cover that and the rest of my operating expenses which are just vacancy and cap ex reserves - (20% $220/mo).

Option C: Apply for a fix and flip loan and convert it into a long term loan after property is rehabilitated. The property will rent for $1300 easily and is in a great area. I will have to pay closing costs twice and most likely pay a higher rate (i've seen around 7-9%). 

Option D: Wholesale for a $10-15K fee and keep it moving.

I don't touch any of the cash flow in my current rental and just saving up to do more deals or reserve it in case of any capex (it was a full gut so probably unlikely for sometime). I rather hold it then wholesale as i want to build my rental portfolio. I would love any insight and opinions on what you would do and what other things i should consider here. Also, if i did accept the LOC, would i still be able to do a cash out refi if their is a first position lien but the line is unused?

Thanks for reading.

[Jaysen Medhurst]

@James Perdomo, okay. $270 a month is fine, as long as you plan to use the HELOC as short-term financing. I think using the HELOC, then refi in to a conventional loan is a great idea.

Have you done a full rental analysis of this property? I'd just want to be sure that you'll have good cash flow with 75-80% LTV. You're just hitting the 1% rule, so be sure of your numbers. If you post them here, I'm happy to take a second look for you.

That being said, if you're only at $85k all in, then you don't have to max your leverage. Keep some more equity in the property, get better cash flow. If you ever need to get the money out for a deal, do another HELOC.