Pay cash for a rental using HELOC or traditional mortgage?

4 Replies

@Stepheni Larson depends on what your goals here are. Also depends if you want to cash out your purchase + rehab cash. If you mortgage it, you’re looking at the down payment and rehab costs. If you use the echo sting HELOC to find the purchase and rehab, you can then Refi the house once rented and (assuming you selected a property with room for forced appreciation) get all your cash back out (up to 80%) LTV. The later is the BRRRR strategy. It works great a and it’s exactly how I find each and everyone one of my deals. I like having the cash on hand because you never know when a great deal is going to come up and you need that cash immediately.

There are loans where you can get the rehab dollars in the same 30 year loan and then the debt is all on the rental property, not your personal residence. If the rental is 2 to 4 units then down payment us 25%. If single family down payment is 20%. Future rent stream is considered in qualifying plus loan is based on ARV.

 These loans usually require 20% to 25% down but calculated off the purchase price plus rehab dollars needed. This way there is no personal loan or line of credit, the debt is on the subject property only and approval based on ARV. For example if purchase price is 100,000 plus needs 50,000 in rehab that's 150,000 so 20% of that is 30,000 down payment. These are for 1 to 4 unit properties and have a 30 year term at todays rates versus 8% to 12% for a hard money lender who want their money back quickly.

I agree with Mike. One thing that I would also consider is the leverage a cash offer can afford you if you were to use your HELOC. You will have more negotiating power with a cash offer than an offer that includes a financing contingency.