HELOC to renovate flip? This a good idea?

[Vincent Plant]

What do you think of this? I have never Invested before but this is my rough plan please critique as brutally honest as possible: My primary residence is currently worth about $240k, I owe $174k. I was thinking of taking out a home equity line for roughly $40k (if I am able) and putting that together with $30k of my own cash. Buy something around $50k cash.... use the $20k in renovations with a hope to bring the value up to $125-$150k. Profit = $50k-$80k Right? Or is this too simple of a plan?

[Bob Okenwa]

@Vincent Plant

Hi Vincent. I am in the same boat as you are and am currently exploring using a HELOC to fund a fix and flip. Be aware that most banks will only go to 80% LTV so if your home is worth 240k, you'd only be able to get 192k worth of total equity. Subtract 174k from that and you have 18k for you HELOC, not 40k+. I've found a few credit unions in Phoenix that will go to 100% LTV so you should do some internet research and find out if anyone in your area will go past 80% LTV. I did a search of 78 banks and credit unions in my area 1 by 1 to find from the FDIC website to see which ones had the best HELOC programs. Took a few hours but I came up with 3 credit unions. Gotta hustle to find what you want sometimes.

Also, don't forget to include fixed costs (buying, holding, closing costs) and budget overages into your plan. As the pros here will tell you, something always goes off plan and you end up spending more than you anticipated. Most budget 10%-20% for extras.

Lastly, HELOC money can be good, cheap funds, but make sure all of your numbers are very sound. Your personal residence is on the line here. If I were you, I'd run the numbers through the BP House Flipping Calculator to make sure you are accounting for all of the costs of a flip.