BRRRR Financing in Huntsville / Birmingham, AL

[Stefan Abel]

Hi All,

I am diving in this month and taking steps to BRRRR my first rental property in Huntsville and/or Birmingham, AL before the end of the year (hopefully sooner). First step is to secure financing and then on to building a team. Flight booked for last week of August for face to face meetings.

My Plan is to obtain a HELOC on my home to purchase properties in cash then convert to a Cash-Out Refinance after seasoning period.

Although I have heard of using a HELOC as a source of short term financing I have not specifically heard anyone speak of using with BRRRR specifically. When it comes time to obtain Cash-Out Refinance I will have a HELOC with a total credit line of $400k and roughly $120k (or less) on loan (purchase price + rehab). I'm aiming at $400k because I should qualify for this amount and want to be able to have ability for simultaneous deals in the future.

My question is, will lenders view the HELOC negatively even though the intention is to pay off using the Cash-Out Refinance? Are there any other limitations on this financing strategy I may be overlooking? Thanks in advance!

[James Gates]

Originally posted by @Stefan Abel:

Hi All,

I am diving in this month and taking steps to BRRRR my first rental property in Huntsville and/or Birmingham, AL before the end of the year (hopefully sooner). First step is to secure financing and then on to building a team. Flight booked for last week of August for face to face meetings.

My Plan is to obtain a HELOC on my home to purchase properties in cash then convert to a Cash-Out Refinance after seasoning period.

Although I have heard of using a HELOC as a source of short term financing I have not specifically heard anyone speak of using with BRRRR specifically. When it comes time to obtain Cash-Out Refinance I will have a HELOC with a total credit line of $400k and roughly $120k (or less) on loan (purchase price + rehab). I'm aiming at $400k because I should qualify for this amount and want to be able to have ability for simultaneous deals in the future.

My question is, will lenders view the HELOC negatively even though the intention is to pay off using the Cash-Out Refinance? Are there any other limitations on this financing strategy I may be overlooking? Thanks in advance!

Hey Stefan! What you are describing (HELOC --> BRRRR) is exactly what my partner and I are doing in the Huntsville market. Please feel free to reach out if you have any specific questions on the process, but I can tell you that generally, I have not run into any problems with using a HELOC and then 6 months later refinancing the property on a conventional loan. My HELOC payments on a 50K balance are only $100 a month, and that is what the bank takes into account when they run your debt-to-income ratio. For us it has been a fantastic strategy to jump-start our investing journey, we went from 0 -> 6 units starting with basically no money other than the HELOC. My HELOC is from a local bank out here in Cali but if you need a few recommendations on refinancing lenders hit me up with a direct message.

If you want to take a look at an in-dept description of what we are doing here is the link.

 https://www.biggerpockets.com/forums/223/topics/685820-first-brrr-complete-details-pictures

Thanks for the mention Caleb!

-James