Pulling out Equity 101

[Carrie K.]

Good morning, and I hope everyone is having a good 2021 so far. I have a novice question about financing.

I bought an investment property awhile ago, and now it has a little equity in it. Let's say at 70% LTV I could pull out $150-200k. I've been wanting to BRRR something in a specific neighborhood with an ARV around $255-275k. Most likely it won't be a perfect BRRR, as I'm still learning how to buy off-market properties, and as most properties there are fairly new (and the floorplans I've seen don't seem to lend themselves to adding a bedroom). So I might be all in for around $230k or $240k. I have some cash saved from my W-2, etc., on the order of $50k, but I see that as a reserve, so I'm trying to minimize how much of it I spend.

How should I finance this? One approach seems to be to pull out enough equity to put 20% down via a conventional loan, do the repairs with my savings, then refinance conventionally once the repairs are done and after six months for seasoning? If I did this, should I pull out the equity from Property 1 now via a refinance, a commercial line of credit, or what? I like the idea of a line of credit so that I won't be paying interest while I'm doing research. On the other, since I'd like to then recycle those funds into the next investment, maybe I should do a permanent refi so that I can keep accessing those funds at a lower interest rate? Am I analyzing the pros and cons correctly here? Can you ever skip the downpayment by cross-collateralizing with another property that has equity to reduce transaction fees, etc., or does this sort of portfolio approach not start until you have more properties?

In thinking about how to come closer to a real BRRR where I could get more capital back, I realized I might need to work with wholesalers and be prepared to pay in cash. (Is that right?) In that case, would the financing approach be to first come up with cash (via a refinance plus finding a hard money lender for the gap), then finance the property conventionally after the project is done? Is there a more streamlined approach? It seems complicated to have all of these different lenders and sources of financing.

Sorry if these are basic questions! I've tried reviewing a few books and articles, and the main thing that I've learned is that it's important to build relationships with lenders, so maybe I should just start calling local banks and asking them. Or should I call a mortgage broker? 

If you have any tips, I'd appreciate them! If there are books or online courses or anything specifically about this aspect of things, I'd be happy to go educate myself too. Thanks!