Leveraging your HELOC to BRRRR

[Donald DiBuono]

Hi!

I have a scenario i would like you all to weigh in on. My partner and I took our a HELOC on our homes. Keep in mind, our personal homes are not making any money. We used the HELOC funds to buy a SFH all cash. The SFH needs minimal upgrades. We will STR / MTR the SFH to bring in revenue. There is a local bank willing to give us a loan on the SFH to take out our original investment. With those funds, we will place a down payment on a larger multifamily home.  Essentially we are financing our down payment from the loan we are using from the SFH which was financed from our personal HELOCS.

Does this leave us too exposed / levered? Is this more risky than a typical BRRRR as we are starting with the equity built in our personal homes that dont bring in revenue?

Thanks!

[Donald DiBuono]

Quote from @Jaron Walling:

@Donald DiBuono We need actual numbers to understand how much leverage you're using. If you and your partner didn't force any appreciation on the primary residences you could be over leveraged like @Nick Belsky was hinting at. It's just robbing Peter to pay Paul. In my opinion in a round about way (HELOC) you're just spreading the love and thinning your equity. It's strategy no doubt but it's risky for newer investors..

I'm in the same boat and none of my properties cash-flow at full 75% LTV. I don't think it's been mentioned but these higher rates are killing most BRRRR deals. We're about to finance out of our current SFH remodel. We won't get all our money back out, and will end up around 65-70% LTV (BRRRR'ish). It's the only way to cash-flow right now and retain equity for future growth. We're trying to lever less at this time. Something to think about before pulling as much cash as possible.

I can give you real numbers. We are collectively using 150k. We both bought our primary homes and rehabbed them. Instead of selling, we took the equity out. We purchased the SFH for 150k. We will spend ~10k in rehab costs and it should appraise for 210k. This will allow us to take out our 150k investment. We plan to STR / MTR the property as it came fully furnished. We will then use the 150k new loan on the SFH to partner on a 990k 9 unit building. We will be responsible for 50% of the down payment. Does this help?