HELOC for BRRRR Method

[Ashley Cao]

Hi fellow BP-ers! I am a new investor looking to get your advice on my current situation: *Paying mortgage on my residence that has about $250k in equity *Not much cash on hand *Interested in BRRRR method or flipping *Targeting out of state because the Bay Area is nuts ;) 1. What are your thoughts about using a HELOC for first investment property? 2. Could you illustrate what the process would look like if using a HELOC? Would you refinance, pay back heloc, then draw again? 3. What would be the pros/cons of HELOC? 4. What are ideal terms for a HELOC? 5. With my situation, would there be any other strategies you recommend? Thanks in advance!

[John Leavelle]

Howdy @Ashley Cao

I use a HELOC all the time with my deals in conjunction with a Private Money Lender (PML) and a LOC (No Cash). I only do BRRRR. I prefer to use Other Peoples Money (Private Investor) before I use any of my own (HELOC or LOC). The HELOC does have one main concern you will need to be aware of. Most have a variable rate. So if you use it have a plan to pay it off as soon as possible. Using a Hard Money Lender is more expensive, but, you don't worry about any rate changes. I'm told there are HELOC's with fixed rates that are a little higher. There are two big keys for me to successfully complete a BRRRR deal. Getting the ARV right and having the Refinance loan arranged before even buying a property.

Here's how I do it. 1. Find a distressed property. 2. Complete my analysis. Provide a report to my Private Lender and Refinance Lender (for pre-qualification). 3. Use a PML loan to purchase the property and pay for the Rehab (depending on total costs and funds available). 4. I use my HELOC to cover Down payment, Closing costs, and Holding costs. I also use it to cover any Rehab costs not covered by the PML. I use my LOC as a back-up if my other funding options are already stretched. 5. Once we start the Rehab the PM will start advertising for tenants. They are usually screened and ready to move in within a few days of the Rehab completion. 6. Start the Refinance process 4 - 6 months after purchase (depends on Rehab). 7. Refinance the property and get cash back (payoff original loan and HELOC). Note: The Refinance process can take 30 to 60 days. 8. Start all over with a new property.