hello BP community
simple question for some. but is it wise to finance an entire BRRRR with a HELOC? what are the pros and cons, thank you to all who answer.
Yes, it's wise. I'm about to do it for my first property. The HELOC got funded just a few days ago. Pros are you get started now instead of waiting forever to save money, you have a much lower interest rate than private money or hard money, and you only pay interest when money is actually pulled out, giving you a lot of flexibility. Cons are that yes, it's still interest (if you have regular cash to burn that doesn't cost any interest) and that maybe you'd get a somewhat lower interest rate if you did a cash out refinance on your own home, but even then you'd be spending money on closing costs and wouldn't have nearly as much flexibility. Shop around for interest rates on a HELOC if you haven't set it up already. They can vary a lot from bank to bank and also depends on the terms of it. Also, if you need another appraisal on your home, many banks will pay for the appraisal if you follow through with them.
I concur with David here for all the reasons. Super good idea if you have enough equity available. Don't do 100% though, that may be too risky if the value of the primary home drops or you need to tap into it a little more. Always refinance it when the job is done!
Ok! So in the refinance step then, when I would do a cash out mortgage with a lender they would give ME all of the cash out value because I used the HELOC to finance the purchase and rehab. Therefore paying back the HELOC and I would receive the left over equity? This is the part of the BRRRR that I'm still a little fuzzy in my understanding.
Check to see if HELOC or cash out refi is tax deductible. I was just told there were some tax changes regarding this a couple years ago.