Cash purchase then HELOC or Home Equity Loan, or Homestyle Loan?

[Deanna Sapp]

Is it possible to do a cash purchase, followed by a HELOC then a cash-out refi? I have looked into delayed financing for cash-out refi under 6 months and would not meet the criteria for that (nor would the loan based on purchase price be enough to complete the reno), so if I do a cash purchase, I am looking at a least a 6 month wait for a home equity loan.

Purchase price - 80k (20k goes back to me as member of LLC, so true price is 60k). Rehab - 125k. Current rent on unit #2 is $525, estimate this would go to $1300 once renovations are complete.

More details: I am in the process of purchasing an owner-occupied duplex (I am also a 25% member of the LLC selling the duplex, and currently living on one side of the duplex). I went the Homestyle renovation loan route, but it's taken 6 months to work things out between the LLC members, the contractor & the bank & the HUD inspector & the appraiser. Now that everything is lined up, I'm looking at a construction bid that's gone up 25% (from 100k to 125k) and bank loan that's gone from around 40k cash down to 52k cash down and monthly payment from 1180 to 1370.

I am having doubts that this is the best route to go, in spite of time & money already invested in this path.

I am considering paying cash to purchase, then either waiting 6 months for a cash out refi home equity loan to do the rehab or (wondering) if it's possible to get the rehab started with a HELOC right after purchase, then 6 months down the road take a home equity loan to pay off the HELOC (with higher appraisal) & finish the remaining rehab work with the loan.

Benefits I see of not going the Homestyle route are: lower rehab costs due to more options in contractors & less stringent lead paint removal without HUD being involved (property was built in 1914), possibly lower interest rate without a Homestyle loan but weighing that against likelihood that rates will raise anyway 6 months down the road, and more flexibility on timeline to complete.

I intend to rehab & rent the other unit for at least 5 years, then may decide to convert the duplex into 2 separate titled properties, sell the other one & pay off the remaining loan.