Heloc to buy a turn key rental??

Question

If I use a HELOC on my primary residence (in California) to purchase a turn key long term rental out of state (example Charleston ,SC), and I put the min %25 down, how would I be able to refinance to pull the money out and then pay back the HELOC to avoid paying too much in variable interest while still retaining the necessary equity in the home? I feel like I am missing something on this strategy and would appreciate a seasoned vet to walk me through it.

Thanks in advance!

Austin Steed · Answer

You would have to wait to have enough equity in the home to do a cash out refinance. Cash out refis come with slightly higer interest rates and loan costs with them.

I really like using a HELOC as an operating account. Something like a BRRR or a flip. Hard to make the numbers work to buy an investment with 100% debt (25% heloc and 75% bank financing)

Mike D'Arrigo · Answer

@CJ Shade It's not likely that you'll be able to do that on a turn key and be able to pull your money out short term. That's because turn keys are generally sold at market value and don't have built in equity. In order to get your money out, you have to add value and create equity. When you go to refi out, you will be limited to a 75% LTV which is what your original loan is.  Let's say you buy a home for $200,000 with a $150,000 first loan and $50,000 down from your HELOC. In order to get your $50,000 out by refinancing, the value of the home would now have to be around 266,000. ($266,000 x .75 = $199,500 -$150,000 = $49,500.

Luther Wilson III · Answer

It’s all about timing.  I think once you’ve pulled the trigger, hold, and give it some time before refinancing.  Hopefully by then you’ll have more equity! Depending on the lender you go through and what type of refi they offer - some seasoning is likely gonna be required anyway.  How long from the time of purchase do you plan on refinancing?   That’s the key part.  Cheers, man.  HELOC’s have been coming through in the clutch a lot lately for Investors.

Heloc to buy a turn key rental??

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