HELOC to fund deals ?

Question

I'm applying for a HELOC 175k - 200k and I was wondering if there was a way to use the funds to buy rentals and convert to conventional financing. If anybody has any experience with this it would be great to hear from you thank you.

Andrew Postell · Answer

@Chris Gawlik yes, you can absolutely do this.  There are some specific rules to know about though.  If you buy a home with cash or with a HELOC it is treated in the same fashion.  You can absolutely start the refinance on day 1 of ownership but you will be limited to how much you can refinance.

You will be limited to EITHER 75% of the "After Repair Value" (ARV) OR your original purchase price + closing costs when you purchase the home....WHICHEVER IS THE LOWER AMOUNT.  This is the "Delayed Financing" rule.

For example, if you buy a home at $50k, put $20k of repairs, and the ARV is $100k then you would be limited to receiving $50k + closing costs. Because the purchase price is the lower amount.  If you bought a home for $50k, $10k in repairs, and ARV is $75k then $48,750 is the lower amount.

You can get the full 75% of ARV after 6 months of ownership in this scenario.

So one solution to think of is forming a company to lend you the money.  The LLC will hold a lien on the property that you can refinance.  Refinancing at day 1 you can use 75% of the ARV.  But the moment you use cash or a LOC then you will fall into the Delayed Financing rule.  I hope this makes sense.  If you think this post is helpful please vote for it.  Also feel free to ask any additional questions.  Thanks!

Paul Higbie · Answer

Chris,

Remember that getting a HELOC on your primary residence now means that you are putting your HOME at risk for your investing.  I'm not saying this is wrong, just understand the risks.

Paul.

Chris Gawlik · Answer

Thanks Andrew, I do have an LLC but what do you mean by forming a company to lend me the money ? So do I just put the property in the name of my LLC ? Then that helps with the financing for a conventional loan at 75% arv instead of the original purchase price rule. I am looking for the best deal possible so the property's I am looking for will need rehab. A bit confused good stuff though.