Second deal strategy Help

[Richard Arden]

Ok, so I completed my first deal and I am ready to start my second. But I am WAY more nervous about this one than the first one. I am going to try to run everything by you guys and maybe that will give me some reassurance. Let me know if I leave anything out.

I bought a duplex in March 2019 that I house hack with my wife.

Purchase Price 115k

Appraised before rehab 140k

1st Mortgage 108k (taken Mar 19)

2nd Mortgage 20k (taken Oct 19)

Estimated value today 180k

Rental income 1250mo.

SO there is about 50k of equity in this house. I have no actual cash. I don't have access to private money right now. That leaves this equity for my 20% down on my next loan. I am looking for long term hold. I am not going to move for better rates. 

I intend on using the MLS and doing some marketing to buy another house in my area. There are about 700 duplexes just like mine with absentee owners in my area. I feel like this is a good start for my first farm area. I did all the rehab on my current home but intend on having contractors do the work on my next property.

Here is a semi realistic scenario for what I am expecting in my area that I think works for me. (I know this is highly variable) 

I did a Bigger pockets rental property calc. on this scenario linked below.

Second Deal Scenario

Should I have used a different calc. like BRRR?

So if I have the 20k down 5k closing and 25k for rehab in the bank something like this would be easy. But i am getting hung up on the creativity and paying back those creative loans.

I did a little shopping for a Heloc. I have a bank that would give me 100% of the appraisal with a 20yr draw period and 20yr payment period. Both interest only and principle options. with a monthly variable interest rate from 5.5% to 18%. I have learned variability in Heloc's are common. but that seems like a large range. especially since there is no "safe period" where the interest rates wont change for so many years like an ARM.

The same lender could also give a cash out Refi at 100% but that would really increase my debt service on my current house to higher than would make me comfortable. not only would my principle go up but i would also have to increase my flood insurance coverage by 50k which is a substantial cost. My first deal does not make any sense with a 180k mortgage.

I think I would prefer the Heloc because I want to use my own capital last. If one year went by before employing I have no loss on the Heloc but i would on the refi.

Lets say I employ this Heloc to its fullest on my second deal. 20k down at say 8% today.(my credits not the best) with a 20yr draw period is 133 mo. the 5k down is 33 mo. and the 25k rehab would be 166 mo. total 333 mo. Cutting my cash flow down to 100 dollars a door.

The Rehab would likely increase the rent from 850 mo. to 1100-1250 mo. per door as well as increase the equity to aprox. 170-180k. It seems as if that method is weak on cash flow but good for equity. 

If I use this variable Heloc for the whole purchase and rehab how do I get rid of it? I don't want to use long term variable debt like that. I will likely only be able to receive 80% LTV on any financing using this second property. Than that would be 136k if appraised for 170k. The Mortgage for the property would be 80k. I would have used 50k on my line of credit. a total of 130k in debt for the property. Meaning I should be able to get another Heloc for 56k, Or cash out refi for 56k cash.

This is where I am starting to get hung up.

Do I pay off the first Heloc with a refi?

Should I just leave Get a second Heloc and repeat?

Should I use the Second Heloc to pay the first Heloc?

Should I find way better financing? what does that look like?

Should I do something completely different?

Did I miss this completely?

Did I forget anything big or small that could change the game?

If I didn't mention earlier I am active duty military. I know most VA benefits require my to live in the investment. that is not going to happen. but if you know some options I don't let me know.

P.S. If anyone reading this does business in southeast Connecticut especial New London County. I am very willing to potentially work with you by finding a deal and putting it together from negotiation to rented. A good education is the most important thing to me right now.