HELOC for down payment, lender issues

[Kyle Kendall]

Hello, first post here. I'm in the military and planning my next move to San Diego and I'm trying to figure out how to position myself to buy another property with very little cash available. I've kind of gotten into the owner-occupied house hacking gamewith 2 properties, here's my current situation:

Current San Diego Condo (too small to move back into): -$200 cash flow a month (on a 15-year mortgage, which I thought was a good idea at the time). $85k equity. Owe $130k, $215k appraised value. $27k HELOC currently with $0 balance.

Newport, RI duplex: +$2000/month cash flow. $200k in equity after intense rehab. Owe $450k, $650k appraised value. No further liens.

Both properties have had tenants for two+ years, so though not ideal, my DTI is ok. Rehab ate up my cash to pay down the HELOC, so I'll have little to use as a down payment when I get to SD.

My problem in the past when applying for mortgages is that the bank wants to see the money needed for closing in an account with all large cash infusions accounted for. They have gone as far as requiring a written letter from my Mom stating that a $1000 wedding gift was not a loan. Is simply having the credit from a HELOC available ok for them?

I'd like to take out another HELOC or home equity loan for the Newport, RI property for my next down payment, with the intent to live in and refurbish before I move again.

Any thoughts about how I can pull it off? Thanks!

[Kevin Fox]

Hey @Kyle Kendall

We'd need to chat in a bit greater detail, but my initial thought about the best way for you to proceed would be:

1. Refi the RI property using a conventional loan, as you have ~ 31% equity. (you may potentially be able to/want to even pull out some cash - perhaps up to $30-40k? @Jerry Padilla - please advise)
2. Sell the current SD condo via 1031
3. Purchase a 2-4 unit property in San Diego with a VA loan, using the proceeds from that sale and refinance to cover any down payment (should you go above the the VA high balance for 0% down) as well as the rehab.
4. Build equity via renters, as well as both forced & market appreciation at your 2-4 unit in SD and your RI property until you're able to pull cash out/trade up and repeat the acquisition process.

If it sounds like an option your be willing to consider,; I think you'll definitely benefit from the 'economy of scale,' of sorts, that we tend to see here with returns in San Diego REI. Feel free to shoot me a private message if you'd like to discuss this scenario in greater detail.

Best of luck!