Quote from @Ben Unger:
What is your plan with payback of the HELOC, since you are using it as a down payment? Do you have a interest rate on both your HELOC and $163k Loan? I am looking at a similar strategy, but cant seem to make sense of the numbers using it this way. Especially since most HELOCs are adjustable rates. I have seen using HELOCs for use in rehab costs, and if its enough even as full cash offer combined with personal savings. Then you just refinance to pay it back with traditional mortgage.
I currently don't have an interest rate yet for the $163k Loan. But the HELOC that we got is only paying back 1% of the total loan balance for the first 20 year draw period. After the 20 years that's when the interest starts to accrue.
In terms of paying back my HELOC, I will have to refinance within 6-12 months and make sure that positive cash flow is still coming in after we refinance
The way I see it in my head is that if I can get the property for 80% of the asking price and put a down payment of 20%, I essentially have 40% of equity to begin with after procuring the property. This helps me analyze the deal to which if we were to refinance the home, we would still be on a positive cash flow.
Current sales price: $255k
Offer: $204k (80% of sales price)
Down payment: $40,800 (20%)
Total Loan: $163,200
Total Equity: $91,800
Estimated Mortgage with 6% interest rate : $1177
Potential LTR: $2000
Potential equity of the home after 1 year before refi and 3% appreciation:$102k
