Running the Numbers Using a HELOC

[Tom Blankenship]

I would say I have a quick question, but it is not so quick. My wife and I are looking at purchasing our first deal other than the investment properties that we own through our IRAs. We are focusing on local multifamily properties for now. When I run the numbers following Brandon Turner's process, I end up with very little cash flow. My problem with this is due to using a HELOC as my down payment and rehab money. If I had the cash to use for this, I would be able to clear Brandon's numbers of $100/unit and approx. 12% CoC. By using the HELOC that adds another $120-$200 per month in expenses to pay and all the deals that I am analyzing at this point are not providing much cash flow. If I look at finding fixer uppers, my HELOC payment is higher with the higher repair costs. If I look at nicer properties, then my HELOC is lower, but my mortgage is higher. So in analyzing deals where I am coming in with no money out of pocket and everything is financed using the combination of a HELOC and traditional mortgage, what is the best process to analyze the expenses (fyi, I am using the BiggerPockets calculators and accounting for all the expenses listed there). Thanks for the help!

[Jaysen Medhurst]

@Tom Blankenship, I think the only way this might work is as a BRRRR.

If you can get it for $48k, put in $13,500 in rehab, then refi after seasoning, you could do a ~$61k note. That leaves 25% equity in the property and a monthly payment of $330. After expenses (including CapEx), you're at $550/month = Cashflow of ~$200/month after debt service. I'm very happy with $200/door/month, myself.

That works. The best part is you're pulling all of your investment out and won't be strapped with the HELOC long term.

This gets you to a final Cap Rate of ~8%, which is very reasonable. Although, Cap Rate isn't a great measure for SFRs, it's good to know where you land. Return on Equity (ROE) is ~12% (just on cashflow).