First Flip Funding Strategy

[Laurie Bachorek]

We are getting our ducks in a row for our first Flip and looking for your comments/advice on our strategy. We have about $160k equity 5 years in on our primary residence. Principal balance is $208k at 3.625% (includes PMI). I have a deal on the table to refinance the mortgage and cash out $35,000 for a down payment and rehab costs on the flip. The refi closing costs are $3500 (financed) and would include another consumer loan we would payoff to get our debt to income where it needs to be - $14,000 (also financed). Also will include $35,000 cash out (also financed) to obtain a new mortgage on the flip and any rehab costs. New rate would be 4.625% and no PMI. This deal will put our principal balance at $264k and leave us with a remaining $100k in equity and increase our monthly payment by $80/month - no PMI. I’m thinking this is the cheapest way to fund our seed money. We want to find a property about $100k / no more than $15k rehab cost / resell for $150k. DFW market.. Thanks for any advice or comments you may have on this funding strategy. Cheers!

[Larry Turowski]

@Laurie Bachorek NO! Get a HELOC (home equity line of credit). There will likely be no closing costs, they run to about 90% of market value, so you could get one for about $120K, take out only as much as you need, pay it off when you don't need it, borrow again on your next flip, and keep your low rate on your original mortgage.

You'll be able to buy your flip property and rehab it with the HELOC and you won't incur closing costs for financing that property either.