Refinance to HELOC for flips?

Question

My wife and I used to be involved in real estate with long term rentals and creative airbnbs. We’ve taken about 3 years off after quitting my job (back to work now) and have paid off around 90% of our debt.

We are considering refinancing our home to draw out more equity and begin flipping. When it’s all said and done, without the HELOC we will lower our current mortgage payment after tying in an already open HELOC.

Refinancing would give us around 40ish thousand equity we can draw with 80% equity loan.

Given where we live this is enough to reach out to larger name hard money lenders or a local lender we have family ties to, to get us started.

Given our very low DTI we can comfortable cash flow the HELOC and any overages on rehab for the first few, aiming for minimal rehab, smaller profits, roll the profit back into the mortgage wash rinse repeat for a few until we have substantial cash reserves.

What would some pros/cons of doing this be? Of course having our home tied to it all would be first and foremost but my income would more than cover any emergency that would arise especially with having just our mortgage as our only debt.

Just thinking out loud and weighing some options

Arman Ahmed · Answer

@Justin Bartram

Hey Justin, sounds like you’ve got a solid plan and I like the approach of leveraging your equity to scale your flips carefully. A few things to consider: using your home as collateral is powerful but adds risk, so keeping reserves for unexpected rehab costs or vacancies is key. Also, make sure your HELOC terms align with your rehab timelines—some lenders require quicker payback than you might expect. Many investors I work with in the Midwest find this strategy works well when paired with reliable local contractors and a good project management plan, so your rehab profits stay predictable. Overall, your low DTI gives you flexibility, but always run stress tests on your numbers to make sure a few hiccups won’t derail the plan.

Justin Bartram · Answer

@Arman Ahmed thank you so much for the insight on all of this. I appreciate it.

we've been around the block with BRRRR deals minus the refinance aspect, surprises are no stranger to me, especially after being in airbnbs for awhile haha!

Jason Wray · Answer

Justin,

Back 20 years ago having or taking out a Heloc was the right idea based on a few factors that no longer exist today.  Heloc rates were lower than a 30 year mortgage, Allowed higher LTV/CLTV's and could manage financially again due to rates and flexibility.  Fast forward to today and look at the rates above 9% and typically Heloc’s carry a prepayment penalty, Interest Only or short term.

Mortgage rates are dropping and will get much better into 2026 due to FED rate cuts, lower 10 Year treasury and other factors.  That being said a mortgage is based on a 30 year amortization versus a Heloc usually over 10-15 years.  So when you run the numbers a refinance into a 30 year mortgage taking out the cash you need offers a lower payment.

A Heloc is also a 2nd lien tool where that can be a hurdle down the road as you cannot borrow more from a home if there is a mortgage and Heloc you have to refinance to consolidate.  A Heloc will "Never" be able to be used as an asset or as PTI reserves but a cash out refinance can and puts the cash into your savings or other account to earn interest until used.

Heloc's are good when it comes to small projects but not for down payments for other REI purchases or paying off debts.  The goal is to refinance take out the cash and use it to buy more rentals homes.  In most cases new investors will complain about having a low rate on their first mortgage and look to take out a Heloc.  If you use the cash wisely and time the refinance correctly you can buy another home refinance on the ARV or 6 month mark and pay off or down the original cash and lower the rate back to normal.

This is how to wisely use equity and leverage to maximize your buying power and keep monthly out going costs/debts as low as possible.  You also have to take into consideration and keep in mind this happens often.  When a person takes out a Heloc and due to unforeseen circumstances they roll late on a credit card, auto loan, or increase their DTI and the bank/lender who is servicing the Heloc will lower credit limit or worse close it leaving you a balance and no other funds to withdraw.

You may feel as if you manage your money wisely but things happen throughout life without much fault.  Could even happen due to fraud or stolen credit or personal data and the Bank/lender still will reduce or close Heloc because it’s done internally with software and systems in place to reduce risk.

If you have any questions feel free to reach out I enjoy helping BP members save more time and money.

My advice is consider doing a cash out refinance now that rates dropped this week and will continue to drop.