Updated almost 5 years ago on . Most recent reply
Lending Question! - HELOCs
I had a friend who has worked in the lending business for a long time give me an interesting idea. However, I’ve never heard of it, and I want to make sure I’m not missing something.
First off, I'm just getting started with a partner, and we're looking to use the BRRRR strategy. We also formed an LLC. We both have houses with some equity and W2 income. We have $100k in private money available to us. We were considering using it for the down payment and renovations. So we've been working on finding the best way to finance the rest of the property for the initial purchase.
My initial thought was to use a commercial loan, then do a cash out refi on another commercial loan.
In steps my friend. Her suggestion was to use a HELOC to cover the rest of what we need to buy a house in cash (not a new concept to me). But then after we renovate the new place, do a HELOC on the new property to recoup the initial one. Then rinse and repeat. Essentially, eliminate the long term financing piece and just do HELOC...at least for a little while.
The reasoning for this is because you become a cash buyer, and you don't pay closing costs on long term loans. Additionally, she said they don't need to do an actual appraisal of your home for the HELOC...they just look at comps and drive by your house. So you often have a higher valuation on your home. I've obviously heard of using HELOCs on BiggerPockets, but not to continue using them, and essentially replace long term lending with them. Thoughts?