Understanding a Refinance

2 Replies

I am going to look at a duplex this week for my first potential investment property and want to make sure I understand everything correctly. 

I used the BP rental property calculator and at the current asking price of $189,000 and using 7% for repairs, capex, and vacancy, it will cash flow $493 per month. Using the 50% rule shows $319 per month. 13.83% COC return.

I have a HELOC on my primary residence for $50,000, which I did not factor the payments into my cash flow calculations. Is this correct?

I am a little unclear about how a refinance will work and effect my mortgage/cash flow. I am able to put down 20-25%, depending what the lender requires. How does the refinance process work with only that much equity in the property? Can I cash that out after 6 months and repay my HELOC entirely?

Thanks in advance!

@Brett Baginski if you're using the HELOC as the down payment, you'll have to be able to add enough value to where 80% of the new value is equal to your original purchase price.

HELOCS work great for BRRRRs, but not as well for conventional purchases, because then you need to account for that payment in your calculations and you lose the ability to use it over and over.

Thanks @Jason D. ! I believe my HELOC payments will be around $290 a month, so I'll still have some leftover for cash flow.

I guess my plan should be to improve the property over the 6 month seasoning period and improve the value.

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