Future implications of using BRRRR without one of the R's

[James Bertrand]

I've scoured the forums looking for an answer to this, and it might be a "duh" moment but I figured I would ask anyways.

A short backstory: My wife and I have just received a HELOC on our primary residence and are on our way to purchasing our first multi-family property (using the HELOC for our down payment). We got 90% LTV, totaling almost $140k in available funds.

My question is this: If I purchase a property that has already been rehabbed and is 100% occupied with long-term tenants, what will this look like in a year when I decide to refinance it? Should I expect to get enough to pay back the HELOC? What would the typical refinance for this look like? I don't think I will pay interest only on the HELOC, I would prefer to pay principle and interest if that makes a difference.

Thanks in advance!

[David Faulkner]

That depends ... can you guarantee that the market will move the value of the property up at least 10% in the next year? If so, then sure, and I would like to use the same crystal ball as you are ... if not, then that is what that "R" is for, to guarantee the forced appreciation that enables the cash out refinance. BTW, I don't think that buying a turnkey property at retail price is a winning strategy, even if it cash flows ... if it doesn't pan out as planned for whatever reason and you need or choose to sell, then it'll cost you ~10% transaction fees to sell it, if the market happens to soften in the meantime (which is a major reason why it may not go as planned), then you have painted yourself into a corner and have run out of profitable exit strategies ... in that case, your only ways out are to bring more cash to the closing table, suck it up and try to ride out the downturn, or let the bank take it back. None of those are particularly attractive options ...