Heloc / Refi

[Tyler Kesling]

Newbie here- I haven't identified any specific assets yet but I'm looking at 4plex or smaller. My strategy for getting started is to use a HELOC for my down payment and all other upfront cost and reserves, then refinance as soon as possible to get the fixed, lower, interest rate. I'm just waiting for the credit union to get the appraisal setup so I know exactly how much in funds I have available. I know cash flow is tough to come by right now, even harder when adding in the HELOC to the DS, so I'm curious about what it would take to refinance a property on closing day? I think I read about some deals this strategy in one of Ken McElroy's books but not sure if that's even a real option or just a good line to add to a book. What criteria would you be looking for in order to qualify and what are the chances of pulling this off?

Thanks

[Jaycee Greene]

Hey @Tyler Kesling. If you're using a HELOC, I assume this will be based on the value of your primary residence. The lender should have been able to tell you the LTV % they will use to calculate your HELOC. I'm also assuming you're looking for a 4plex near where you live. What are the going prices for those types of properties?

[Jonathan Greene]

HELOC is not what it used to be because HELOC rates are so high right now. You have to think about a HELOC for what it is also, a second loan on your primary residence. It can work, but not as easily as it once did. Some advice on HELOCs:

Only use 50 percent of the total amount you have available and earmark 15k of that for reserves. So you have 1/2 - $15k available to use.

[Tyler Kesling]

@Jaycee Greene I met with the credit union and waiting on an appraisal but pretty certain I'll access to around $80K @ 8%. To get any cashflow I think I need to be looking for something around $250K, that doesn't need a lot of up front rehab, to give me enough extra for closing and reserves, and in a submarket that will gross 3000/m. With the HELOC, I think that will still puts me in the black about $125. I think that losing the HELOC should create a little better cash flow but at the very least it will put some stability into my debt service.

[Jaycee Greene]

If you're getting $3k/month in rent on a $250k purchase, you shouldn't have any problem cash flowing it.