HELOC Down Payment Advice

Buying & Selling Real Estate
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HELOC Down Payment Advice

Thomas J. Budka
New to Real Estate · MA · Member since 2020 · 25 posts · 9 votes

I know this has been discussed and I have read a few of the posts in the forums but my answer still has not been answered. In speaking with a friend, he mentioned using a HELOC from my primary residence to put money down on an investment property. Then, taking a HELOC out on the investment property, after doing some rehab to the property, to pay back the HELOC on my primary. Then calculate the HELOC into my expenses on the investment property and pay it off over time. So now, I would have a mortgage and a HELOC payment on the investment property. How long would I need to wait to REFI the investment mortgage to incorporate the HELOC?

Am I thinking of this all wrong? Is there a better way? I do not have the cash to purchase a multi-family in my area outright to BRRRR a property or is my understanding of the BRRRR incorrect? I know there is the book, which I plan to read after reading the current one I am reading. Any help/advice is appreciated.

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Brandon Roof
Rental Property Investor · Member since 2019 · 187 posts · 230 votes
6y

A few things that may simplify your equation. A HELOC on an investment property is not impossible but it can be more difficult to obtain than a HELOC on your primary residence. However, in the case you are describing, a HELOC on your investment property would be moot. In what I'm interpreting from your description is that you are looking recapture any money used from your HELOC which is exactly what a well executed BRRRR is intended to do. Let's use a hypothetical situation to better demonstrate:

You purchase a property for $80,000, putting down 25% (or $20,000) from your HELOC. For this example, the property will require $18,000 in rehab, closing, holding costs, etc. After rehab, however, the ARV of the property is now $140,000. When refinancing (which can vary from being able to do immediately to over one year depending on your lender and unique situation but plan on it being at least six months) you'll potentially receive 70% of the ARV which equals to $98,000 in this case. With the house being purchased for $80,000 and another $18,000 for rehab and other expenses, that $98,000 replenishes your HELOC and leaves you with every dollar you started with and now you have a property to boot. The main difference now is instead of your property carrying a $60,000 mortgage, it carries a refinanced $98,000, limiting your cash flow but freeing up your line of credit for any subsequent purchases.

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  • Brandon Roof
    Rental Property Investor · Member since 2019 · 187 posts · 230 votes
    6y

    A few things that may simplify your equation. A HELOC on an investment property is not impossible but it can be more difficult to obtain than a HELOC on your primary residence. However, in the case you are describing, a HELOC on your investment property would be moot. In what I'm interpreting from your description is that you are looking recapture any money used from your HELOC which is exactly what a well executed BRRRR is intended to do. Let's use a hypothetical situation to better demonstrate:

    You purchase a property for $80,000, putting down 25% (or $20,000) from your HELOC. For this example, the property will require $18,000 in rehab, closing, holding costs, etc. After rehab, however, the ARV of the property is now $140,000. When refinancing (which can vary from being able to do immediately to over one year depending on your lender and unique situation but plan on it being at least six months) you'll potentially receive 70% of the ARV which equals to $98,000 in this case. With the house being purchased for $80,000 and another $18,000 for rehab and other expenses, that $98,000 replenishes your HELOC and leaves you with every dollar you started with and now you have a property to boot. The main difference now is instead of your property carrying a $60,000 mortgage, it carries a refinanced $98,000, limiting your cash flow but freeing up your line of credit for any subsequent purchases.

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  • Thomas J. Budka
    OP
    New to Real Estate · MA · Member since 2020 · 25 posts · 9 votes
    6y
    Originally posted by @Brandon Roof:

    A few things that may simplify your equation. A HELOC on an investment property is not impossible but it can be more difficult to obtain than a HELOC on your primary residence. However, in the case you are describing, a HELOC on your investment property would be moot. In what I'm interpreting from your description is that you are looking recapture any money used from your HELOC which is exactly what a well executed BRRRR is intended to do. Let's use a hypothetical situation to better demonstrate:

    You purchase a property for $80,000, putting down 25% (or $20,000) from your HELOC. For this example, the property will require $18,000 in rehab, closing, holding costs, etc. After rehab, however, the ARV of the property is now $140,000. When refinancing (which can vary from being able to do immediately to over one year depending on your lender and unique situation) you'll potentially receive 70% of the ARV which equals to $98,000 in this case. With the house being purchased for $80,000 and another $18,000 for rehab and other expenses, that $98,000 replenishes your HELOC and leaves you with every dollar you started with and now you have a property to boot. The main difference now is instead of your property carrying a $60,000 mortgage, it carries a refinanced $98,000, limiting your cash flow but freeing up your line of credit for any subsequent purchases.

    This is what I was thinking. But, then I looked at the REFI of the property and kept seeing I had to wait anywhere from 180 days to longer to REFI. Thanks for the clarification!

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  • Mike MoseePro Member
    Investor · Eagle Point, OR · Member since 2011 · 181 posts · 118 votes
    6y

    If you check around there are some mortgages available after only 90 days seasoning

    0Reply
  • Rick Perez
    Member since 2020 · 8 posts · 2 votes
    6y

    I went to a local bank in Springfield Massachusetts. They advised me that they had no seasoning period. Shop around. 

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