Cash deal & home equity loan

[Daniel Martinez]

Hi all! Forgive my ignorance as this is my first time posting and I’m new to real estate investing.

There’s a home I’d like to purchase that’s in need of a rehab. They’re asking for $150,000 cash. Similar homes in the surrounding area are selling for around $280,000.

My question is this, suppose I could get a private loan for the $150,000 and purchase the house. Assuming the value of the home increases after some work is done, could I then turn around and apply for a home equity loan to pay back the initial private loan?

Is this strategy plausible?

[Brian G.]

@Daniel Martinez yes you can purchase the property with a private loan and after fixing it up you can do a refi after 6 months on the property (ie put a mortgage on it) at 75% ARV with a conventional loan (the cheapest money to borrow) and pay off the private lender. For easy math, let's say you purchase a property for $50k with a private loan, put $25k into fixing it up and increase the value by $25k so it is now worth $100k. After 6 months you can refi for $75k (.75x$100k) and put long term financing on the property, the new lender will pay off the private loan if it is secured by the property (ie if you put a deed of trust in place and sign a promissory note when the private lender loans you the money). If the private loan is not secured by the RE, you can do a cash-out refi at 75% ARV and use the money to pay off the private lender.