Refinancing Strategy for BRRR

[Zane Lyons]

Hi all,

I'm just about finished with my first house-hack/BRRR combo strategy and it is going well, but could use some advice and direction at the tail end here.

I purchased and moved into a distressed off-market property in SLC, UT back in January of this year for $400K, putting 10% down ($360K mortgage). The house appraised for $430K, giving me a decent chunk of equity right off the bat. I took out a 100% LTV HELOC at a local credit union for renovations, and spent about $60K to fully update the place (so ~$420K total in debt financing).

I just got my appraisal back last week and ended up at $645K – I am very pleased with this outcome and think this deal went very well!

My initial plan was to do a cash-out refi at 80% LTV, use the funds to pay off the old mortgage and HELOC, and be left with ~$90K to reinvest in a second property. With rates ballooning so much in the last few months, I want to double check that that is my best option.

My current mortgage is around 3.5%, and my HELOC has gone up to 11.25%. My broker estimates my new mortgage would be somewhere between 6.5-7%. It pains me to refinance my initial mortgage and double my current rate, but I can't think of how else I can pay off my expensive HELOC. I also don't want to have ~$90,000 in "dead equity" and would love to use that for another down payment!

So my general question is: is refinancing (and doubling my current rate) worth it to pay off my HELOC and cash out my extra equity? Is there another option to keep my current mortgage and still cash out/pay off my HELOC? Any guidance or thoughts would be greatly appreciated.