HELOC VS Conventional Refinance

[Jacob Bopst]

Hi there!

Can we go over some positive and negatives on using a HELOC(home equity line of credit) VS a conventional mortgage when doing a BRRR(Buy rehab rent repeat) strategy? I'm looking for what gives you the best return/cash flow and what do you typically find. Does HELOC usually have lower rates? Amortization, what does that mean and how does it apply? Does one have restrictions that another doesn't? I would love to hear your opinion.

If you have experience with examples please share! Thanks in advance.

Regards,

Jacob 

[Jon Crosby]

@Jacob Bopst  I would suggest you sit down with a mortgage broker to go over all your questions as they will be able to answer your questions more specifically.  Mortgages and HELOCs are fairly different other then they are collateralized by real property. 

HELOCs are usually interest only loans for like 10 years and then get amortized for the next 10 years to pay off the principal.  They are often variable interest unlike a fixed rate mortgage which is the same for the entire 30 years (or 15 years). 

I personally haven't done a BRRRR but if I were, I would likely use my HELOC for acquisition/rehab and holding costs and then switch over to a conventional mortgage once the property is 'seasoned' enough to get a mortgage. I would never use a HELOC as the R-efinance portion of the BRRRR model however if that's what you are asking. That should always be long term, low interest conventional financing, in my opinion at least.

Best of luck!