Buy property with Heloc then cashout refi

[Brian Cerezo]

Hey everyone!

I just got a heloc on my primary residence of 150k. For the first year the rate is locked at 2.99% then of course goes to prime after.

I’m thinking of putting a cash offer on a duplex which I can potentially get at a discount if it’s a cash offer. Then immediately after I would go to one of the lenders I work with for a cash out refi with hopes the appraisal is as good as I believe it to be. The property is pretty much turnkey so I doubt I’d fix anything big and is currently rented out below market.

Just wanted to know your thoughts on going this route of buying outright to refi, or just buying with a 20-25% down using the heloc and just have a mortgage on the property. (Only reason why I’m not fond of this is having to pay the interest on the heloc and the mortgage)

Thanks y’all!

[Greg Scott]

There is nothing wrong with this strategy, but I have concerns with some of your tactics.

The key part I don't like about your plan is your "hope" the appraisal is strong.  Hope is not a formula for success.  If you were using a mortgage to buy this, the lender would require an appraisal and you would know in advance if it made sense to move forward.  

To ensure you have a deal, get an appraisal immediately.  Let's say you got under contract for $150K but your appraisal comes back at $100K.  It would be better to walk away and leave the earnest money behind than buy and immediately lose $50K in equity.  Replace "hope" with "facts".  There is a cost for doing that, but it is much cheaper in the long run.

Related to that, interest payments are just a cost of doing business. If your business plan is solid, that should be no big deal.