Third lien position for flipping funding?

[Justin Bartram]

I am looking to utilize a new HELOC to finance flips off of my personal home. In the past we used the current HELOC I have on our house for flip and hold and furnishing several Airbnb's we had in the past.

I have been looking into refinancing the house to wipe out the HELOC and then turn around and open a new HELOC but our house was valued at 58,000 when we initially purchased. It was last appraised by a realtor (nothing officially documented) at 150,000. We owe around 90,000 total including the HELOC.

What I am conflicted on is the property tax. With the tax bill increasing and a higher interest than we currently have I am wondering if it would make sense or not to utilize a HELOC.

Another aspect I have looked at is using the house directly as a lien position for the lender for the downpayment with private or hard money.

If I were to not refinance the house I am unsure if I could convince a lender to take a third lien position. Our current roadmap is to flip houses, pay off the HELOC and eventually mortgage. After that start building massive cash reserves and start flipping with cash.


Has anyone dealt with anything like this and found resolve?

[Ricardo R.]

Hey Justin,

You're in an interesting spot — using a HELOC as fuel for flips can work, but stacking liens past a second gets dicey fast. Most private and hard money lenders don't want to be in a third position because if things go sideways, they're way down the line to get paid. That usually means they'll either (a) say no outright or (b) charge you so much in points/interest it kills the deal.

Couple thoughts:

• Refi + new HELOC: If you refi to roll the old HELOC in, your payment/tax bill goes up, but you're basically resetting the deck and giving yourself a clean slate for a new HELOC. Just make sure the spread on your flips covers the higher monthly nut.

• Skip the third lien idea. It’s really rare to find a lender who’ll go for it, and even if you did, it’s high risk for them (and high cost for you). You’ll burn a lot of time chasing a structure that almost never pencils.

• Alternative: Use the equity in your home for the down payment (via HELOC), then let the hard money lender take first position on the flip property itself. That's a lot cleaner and much more common.

• Big picture: You’re thinking the right way with the roadmap — using leverage to get going, then paying it down and building cash reserves. Just be careful not to back yourself into a corner with rising taxes and payments on your personal home. Flips already come with enough risk.

If it were me, I'd avoid the third lien rabbit hole and either refi + new HELOC or just structure deals where your HELOC acts as the DP and the hard money lender has the first lien on the project. Keeps you liquid and keeps lenders happy; I hope this helps you a bit, I sent you a DM on BP and hope you can assist.