HELOC to fund deals ?

[Chris Gawlik]

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]

@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!