Using HELOC to BRRRR

5 Replies

My wife and I bought in an up-and-coming neighborhood just three years ago, but now have 130K in equity almost entirely from appreciation.  We have solid jobs and a small emergency fund.  I am interested in deploying our equity so that we can generate cash flow.  Real estate in Charlotte, NC is getting expensive fast, but this is what I would like to do:

-Open a HELOC

-Buy a distressed property (one that will qualify for a loan but still needs work)

-Utilize HELOC for the down payment and for repairs

-Rent

-Complete a cash-out refinance for the forced appreciation

-Pay off HELOC

-Look to repeat

Here is the rub:  My wife is very risk-averse, and I think the best risk mitigation is to "buy right", but I don't know how to do that without doing a direct mail campaign. I am also concerned realtors might get annoyed at me trying to find a property at 25% below ARV Less Repair Costs. It might take a while in my area.

Does anyone have any recommendations for me?  As a first time investor, how do I efficiently "buy right"?  Will I drive off quality realtors trying to find a below-market deal?

Thanks for your insights!

Hi Jeremiah. You're right that some realtors aren't used to working with investors & unfamiliar with the BRRRR strategy. So, first step is to work with investor-friendly realtors. Direct mail campaign may be one method of acquiring a BRRRR property, but there are also auction & auction sites, foreclosure listings, Craigslist ads, etc. Given many of these deals won't be listed on the mls, you also have to be creative in how you look for them. I'm sure there are RE meetups & groups in CLT, so try to attend a meeting to meet other investors who may offer more specific strategies or have properties they are looking to unload themselves. Good luck!

@Jeremiah Robison I contemplated the exact scenario not too long ago. My wife and I bought a house in Colorado Springs and got extremely lucky as it has appreciated more than I could have imagined in 4 years.

That particular home is currently now a rental so I figured, well hell, should I do a HELOC or a cash-out refi. I chose to go the cash-out refi route instead. For me, its cash in hand with a low extra increase to my original mortgage. I will say, this route may be the less risky option, to appease your wife, but its one time. HELOCs, aren't necessarily risky either but they come with a few extra variables, adjustable rates, draw and pay-back periods, some come with early payoff fees...but they can be replenished and re-used over and over during the draw period so that might tilt the scale for you.

As for the agent, @Jason Clarke said it, find an investor-friendly agent; one who frequently works with or is an investor themselves. These agents will know what to look for and may even be able to give you suggestions for rehab. They may/will also know contractors, lenders and PMs. If you haven't I recommend reading David Greene's BRRRR, great book that explains all of this and if you have time take a listen to the podcast too.

@Jeremiah Robison - I’m in the process of closing on a deal in which I leveraged my equity to purchase two 4 unit properties off market at 50 cent on the dollar.  My agent, who is also an investor as well as my property manager brought me the deal.  My advice is find someone similar in your area as they are bound to have deals that they cannot do for a variety of reasons and based on the relationship you have with them and their understanding of your goals, they will become a great source of deals for you.  The trick is that you want to add value to their business FIRST and by doing so they will be more than happy to return the favor.  Happy hunting!!

@Ken Eck , thanks for the feedback. I am almost done listening to David Greene's BRRRR but may get a hard copy too to be able to physically pick up as a quick reference guide. For those of you that posted, do you normally use a real estate agent to find deals of the MLS or do you find deals directly with the seller? If you find deals directly with the seller, how do you go about putting together the contract and closing?

Hello guys quick question, if i use a Heloc to finance the BRRR startegy is it true some helocs do NOT allow you to use the funds for rehab or closings costs, and once im done with the first one and want to repeat that onto another property, that there's a waiting period of 6-8 months? I thought helocs were treated like cash, so id have the flexibility of refinancing and getting hoopefully all the money back assuming deal is perfect with remodeling costs at the ltv value of course. just wondering thanks so much!

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