Using HELOC to Buy Outright? Then Refi?

Question

Total newbie here but have been reading from afar about how to leverage/extract equity from a primary residence using a HELOC and want to validate an approach/idea/though to see if I'm following this properly.

If I was to take a HELOC out to buy a SFR outright(~$100k purchase) and then re-finance after 6mo/1yr to fixed 30yr rate and get an 80% LTV, I would essentially "get back" $80k, pay off principle of HELOC directly, and return the "used" HELOC value to $20k.  Is that feasible/accurate? Also, is that the right way to look at leveraging a HELOC when our goal is Buy and Hold, long term strategy?

Note " I'd then combine the HELOC interest only monthly payment with new mortgage to get a total monthly cost when doing property evaluations."

If the above is feasible and accurate, knowing now that I still have to pay off $20k of HELOC...why wouldn't I use the same $20k HELOC as down payment for the same house and limit exposure/closing costs/time of refinancing? Or use say $60k and purchase 3 homes?

Thank you in advance for the help/guidance!

Arun N · Answer

What if you can't refi into a conventional loan? There's already talk about the lending markets tightening down substantially because of the economy. I've heard from multiple sources that banks did cut-off access to helocs during the 2008 recession. Tread carefully.

Evan Polaski · Answer

@Alex Todd I am not seeing any fault in your logic.  A HELOC is essentially as good as cash.

And while you could use your HELOC as the 20% and get a loan for 80%, the only issue would be typically for any type of investor special properties you need to come in with cash.  And could still be slightly ahead, depending on your deal flow.

Closing costs will essentially be the same.  Only difference may be adding a lender policy to an existing title insurance policy (I always recommend getting title insurance).  You can actually start the refi/delayed financing process as soon as you are under contract.  If it is a good deal, and you can lease it immediately, you could close quicker with the "cash" offer using HELOC, and get your lease started faster, so bringing cash in now.  The refi/delayed financing will typically take 30 days, since title work is already done before close, you simply need underwriting and appraisal. So you essentially got an extra month of rent.  And, cash offers are often more likely to be accepted than financed, all else being equal.

The risk is obviously your appraisal with a refi/delayed financing.  If you buy for $100k and the bank only appraises at $75k, then you can't back out of deal since you already own it.