Using a HELOC for a BRRRR

[Joe Delgrosso]

Hey Everyone! So I currently have 5 single family investment properties that perform nicely but I've been dancing with the idea of doing my first BRRRR.

I'm reading the books and the blogs and in the meantime checking out deals to get a boots on the ground exposure to this new world. 

Here's a situation that popped up yesterday that got me stuck...

I viewed a single family house in a good area that I could have bought for $70,000 and it needs at least $35,000 worth of work. $105,000 total in an area where similar houses are going for $140,000. I just purchased a single family rental a few months ago and I'm currently cash poor so I was going to use my $55,000 line of credit towards the this but I don't think the numbers make sense. 

I would need $20,000 from that line of credit to go towards the down payment/closing costs to get the property and then I'd need the remaining $35,000 for the renovation. So now I would have maxed out my HELOC and will have a larger HELOC payment on top of my other expenses for the property. Also, the whole goal behind a HELOC is to be able to pay the balance back fast so you're not paying the interest, but there's no way I'd be able to get even close to that $55,000 back with the cash out refi.

Where am I going wrong and what am I not understanding? Eager to learn from experienced BRRRR folks.

[John Warren]

@Joe Delgrosso you aren't doing anything wrong. Most deals don't give you all your money back when you refinance, and that is ok. Lets say you could do a cash out refinance, and then get 1/2 your money back. Would the property still cash flow well? What if you could get 75% of your money back? 

I think a lot of investors are too stressed about getting every single penny back in the refinance. What you should really think about is do I want to own this asset long term, because that is what you will be doing if you do the BRRR method!