After meeting with my bank, I told them I wanted to refinance my duplex after I made the proper renovations. They advised since the duplex was cheap to start at 25k that it would make better sense to take out a HELOC against the property after renovations were done. Their pitch was this:
I would have to pay 2-3k in fees to get it refinanced whereas the HELOC would be free through them and that even though the HELOC would be 2-3% higher rate, it would take years to make up for what I would pay in closing costs. And at that time I could simply do a portfolio refinance loan with all of my other properties I BRRRR'ed through HELOCs.
Besides having to find more banks since there seems to be a limit on HELOCs, can anyone steer me why this would be a good/bad strategy when compared to traditionally refinancing with closing costs attached?
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
7y
Zach:
If I am reading correctly that you purchased the duplex for $25K, then I would say their advice is accurate. You don't want to spend $3K in closing costs only to get a similar amount back from the refi. That makes no sense.
One caveat to be aware of... HELOCs really are short-term instruments. They often have a 5 or 10 year balloon. Just know that if you get one you have locked yourself into paying off or refinancing that note in the future. Also many HELOCs can be terminated by the bank with a certain amount of notice. Just be aware that these are additional risks you take on vs a refi to a conventional mortgage.