Using a HELOC for rental property purchase

[Jeff Piscioniere]

Hello all! I'm involved in a partnership with 2 other friends and we are moving on to our second buy and hold rental. This second one that we are looking at has one of the partners willing and interested in using his personal HELOC to buy it in full under the premise that we can refurbish and refinance after getting a higher appraisal. It's a 2 family and the tenants want to stay and although the apartments need updating they are habitable and we may not touch them until tenants move out. That leaves the possibility of upgrade/renovate/refurbish/etc to the basement and exterior. In my personal opinion I'm not exactly sure how much value add can be added outside of unit renovation that could ever elevate the property's value in any short period of time where we could pull out money in excess of paying back the partner's HELOC plus anything more to use for the next property. What might I be missing here??? Thanks to BiggerPockets I'm a proponent of using OPM (other peoples money) while limiting use of anyone's personal funds. I don't see the sense of one of the partners almost completely expending his personal HELOC while all 3 of the partners are on the hook to make his payments of principal and interest while operating on the assumption that the house could appraise much higher in a short period of time by doing what may amount to putting lipstick on a pig.

Approximate numbers are $65K house and his HELOC interest rate is currently over 5%.

Any thoughts and opinions would be greatly appreciated! Thank you in advance!

[Jaysen Medhurst]

I agree, @Jeff Piscioniere, there's not a lot of value to add without going into the units themselves. The exterior, sure, but not the basements (unless there are mechanicals / water issues to deal with).

Are you buying this under market value? If not, I don't see how you're going to pull out any money. It doesn't matter if you push rents on a duplex, it is still going to assess based on similar properties.