Question on HELOC on Financing

[David Lauka]

Hello BP Community,

I am planning on making my first purchase(s) in the next few months and spoke with a few portfolio lenders and it looks like using the HELOC for financing is a great option. My line of credit will be roughly 100 - 150k so I'm planning on using that as down payments for 4 - 8 units depending on what makes the most sense. However, I am unsure of how I want to repay the HELOC, through cash flow from the properties or from cash out refinancing the properties.

My instincts are telling me to use the cash out refinance to pay back the HELOC because I don't see the cash flow as paying back the HELOC fast enough and I'd like to repeat the process of using HELOC as down payments sooner rather than later. Any insights on how either approach will impact cash flow, debt to income ratio, and the ability to grow aggressively would be great, thanks!

[Darren Budahn]

David Lauka

I'm a bit confused. You said you wanted to do use the HELOC for down payments. Then you also said you want to do a cash out refinance. With the line of credit you have, I would probably be buying in all cash with the line of credit and then refinancing as soon as I could after. You don't want to buy using a loan and then cash out refinance shortly thereafter as you will be paying closing costs twice. If you want to grow aggressively, I would buy properties at a discount with the line all cash, and then find a lender that will let you cash out refinance based on the appraised value with no seasoning. Then you can pay off the line and use the same money over again