I will be buying properties soon and implementing the BRRRR strategy. The thing is, i will be using a HELOC for the full cost of the home plus rehab. To make my payments lower on the HELOC I was thinking of using delayed financing to pull some money out to pay down the HELOC making the monthly payment lower and then once the rehab is completed then refi to pull the remainder of my capital out. Does this make sense or has anyone done this? Thank you
I haven't done the delayed financing into a refi, but I would think the biggest downside to this approach would be the double closing cost. Another thing I wanted to mention based on my experience is that if you BRRR using the HELOC as your primary means of financing...the balance on your HELOC at the end of the project will show up on your credit report as revolving credit. Depending on your situation this may lead to a big downward movement in your credit score at the exact time you are needing to refi. Just something to keep in mind.
@Sean Harris it doesnt make good financial sense to do it that way. The savings in monthly payment will not offset the additional closing costs associated with doing 2 refinances.
Ok that makes sense on the double closing costs, I kind of just learned about delayed financing so I was curious what others thought. When would delayed financing make sense to use?
What Jason D. said! Get the rehab done ASAP and refinance it once.
Delayed financing is a great strategy to use! A SFR is 75% LTV ad a MFR is a 70% LTV. You are subject to a maximum of your initial investment.
If you include on your closing statements (which vary state to state - HUD-1/ALTA statement ) the renovation costs - and have them charged at closing...... This renovation cost now becomes an initial closing cost and can be included with the max that you are able to pull out prior to 6 months.