Pre approval or HELOC first?

[Kristen Silva]

Hello,

I am new to the Bigger Pockets community. My husband and I are looking into purchasing our first investment property. We have a primary residence that has about 350k of equity. Our current rate is 3% so a cash out refinance isn't an appealing option to us. We are looking into the possibility of getting a HELOC to serve as a down payment on a small multi family unit (duplex-quadruplex), putting some $ into it to fix it up, and doing a refinance on the property to pay off the HELOC. My question is, should we go through the process of getting pre approved before pursuing the HELOC or after? Will the HELOC affect the amount we can be preapproved for?

Any additional insight or advice for those of you who have done this before is always appreciated.

Thank you

[Andrew Freed]

@Kristen Silva - I say HELOC first then pre approval. Having access to an interest only "credit card" for hundreds of thousands of dollars is appealing. Especially when it is at 4-6% interest only, usually for a period of 10 years. You could transition that into an asset paying a 10-12% COC return. You could also act as a hard money / private lender and gain similar returns to an active investor. You essentially are arbitraging one pocket of funds into higher return, that is how hedge funds and banks operate.

Just having access to that amount of funds lowers your opportunity costs. If a great opportunity presents itself, transition the funds into that asset otherwise don't use it and you maybe might pay a $50 dollar annual fee. Sounds completely worth it if you take into account the opportunity costs it allows you. 

Lastly, you have access to the best LOC and terms when its your primary residence so it is advantageous to set up the HELOC before you find a new primary. This is how I expanded my portfolio and it worked out well for me thus far. Househack ----> HELOC ------> Househack -------> HELOC