How would you do this deal

[Pat Jackson]

I've found a 2 bed, 1 bath house. ~1,100 square feet, on a small lot in the midwest. My goal is to buy and hold this property, and BRRR it after I'm on title 6 months and it's seasoned.

Can be acquired for ~$20,000 (REO)

Needs ~$25,000 (on the high end)

Can be sold as is for $40,000

Will appraise for $75-80,000

Will rent for $700 a month

Assuming my numbers are right, get ~$60-64,000 back at cash out refi.

Which options would you choose:

1. Do the whole thing cash.

2. Buy the house with a conventional mortgage, a 5% interest rate, and ~$2,000 in closing fees.  (I called a local bank, this is an option).  Then pay for the rehab cash.

3. Do the whole thing through finance.  I posted elsewhere terms I can get through a local portfolio lender:

85% of purchase price

90% of rehab cost

12.5% interest and 2 points, 10.5% interest and 3 points.  Minimum 3 months interest.  Also have to pay ~$3,000 in fees.

4. Buy the house with my HELOC (6% interest), and pay cash for the rehab.

I'm leaning towards option 1, 2, or 4. Most of my cash would be tied up in the house with option 1. Closing costs would be a big downfall to option 2. Option 3 just seems expensive but I'd get experience and "prove" myself with the lender. Option 4 seems like the best bet, I'd have the most cushion if something went wrong, there are no fees with the HELOC, and 6 months of 6% interest wouldn't be terrible.

Thoughts?  Suggestions.  Is there an option 5?