Using a HML to purchase househack property. How to refinance?

[Anthony Scarlata]

Hi all, new to the forums but not entirely new to the game. However I did make a lot of mistakes on my deals so am now really trying to learn a lot going forward. I've never refinanced so please bear with me.

I have 2 properties that I househack (I only live in one of them househacking, and room to room renting in the other) through traditional loans and have been househacking for several years. I'm 25 so my regular career is only now starting to become successful and I'm at a point where I want to save and earn money instead of blow it all so I'm starting to work on the RE portfolio.

Now my DTI is at it's limit, so I was thinking of acquiring more property through HML, rehabbing, hold and rent. However, I've never rehabbed before so it's a bit riskier for me and the *real deals* are very hard to come by in the area I'm interested in. I figured I'd cut some corners and just go through with turnkey deals until my RE portfolio grows and I make more connections. My reasoning is because me and my wife will be in this area and can directly manage househacking, it's less stress and hassle on our end and we end up still coming out ahead because we can househack each house we have earning a considerably higher cashflow than traditional renting. We have a good strategy for househacking and I've had 0% vacancy rate and 0 evictions in 5 years (and I'm sure I just jinxed it now!).

So my primary question is, what is the most beneficial way and what exactly would the process be of using a HML to purchase a turnkey property and then I'm guessing, refinance out of it later down the road to pay back the HML? Traditionally using a HML to rehab a house and refinance out of it, you would still have a good chunk of equity in the house allowing you to take on the traditional loan in the first place and completely pay your HML back. But even that brings up a question.

How do you refinance a BRRR to pay back the HML when refinancing would go way over your DTI?

With the strategy I want to use, I feel like this might not be feasible with how little I want to put down. And even if I put down the 20%, I don't understand how I could refinance out of it. For the properties I'm interested in, I can only afford 10% down. I'd love to put only 5% down, but I'm not sure if I'd need more to be able to refinance later?

Example:

Purchase price $100k

HML will fund up to 75% LTV - $75k

I put down 10%, $10k.

Lender finances $15k (which means I need to have $70~ available in my DTI pool)

I have 85% equity in the house once it's a done deal. From here I don't know what happens, because after 12 months of seasoning when it comes to a refinance, how can I refinance if my DTIcannot afford the new refinance, which would be Refinancing at 75% LTV, so they give me $75k cash (or is it 75% of the 85% equity I have?), I give that to the HML, but my equity goes down to less than 20% that's required for a rental property? I'm not entirely sure, my brain is starting to hurt a bit from the confusion.

Any suggestions for how to make this work?

Thanks all in advance for the replies!