Investor · MI · Member since 2019 · 112 posts · 221 votes
Hi! This is my first post and I'm new to listening to the podcast and my mind is blown! I was listening to episode 270 and at about 21 minutes, Amy talks about how she did a cash out refi on her primary home and bought a new property with it. The host (can't remember who was talking at the time) said that his parents did HELOC on their primary, bought a new property with it, repeat (I'm guessing the BRRR method??)
Anyway, my hang up is...how do you pay off the HELOC (or cash out) you take from your primary home if you keep putting the money from the next house into yet the next house? Use rental income? I'm just imagining this huge HELOC payment/loan that has to be paid off in 10 years -- on top of what our regular mortgage payment is.
Just wondering how others do this? thanks so much!
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
6y
@Nikki Closser the idea behind the BRRR strategy is that you create enough value in house #2 to get sufficient cash out to pay off all funds you used as a down payment. If you are able to do this, you return your HELOC balance to zero before moving on to house #3. This is MUCH easier to do in theory than in practice, but this is the essence of value add investing.
In real life, you sometimes have to leave money in a deal. I am in the middle of a BRRRR in Cicero, IL on a six unit, and I am learning that commercial banks will not lend on the full after repair value until you have held the property for more than on year. This means that I will need to continue paying my HELOC/pay off my HELOC. At the end of the day, this is fine as I picked up a quality asset with equity that wasn't doing anything for me anyways sitting in my primary home.