Is there a benefit from HELOC vs Hard Money?

Question

Are there any benefits for using a HELOC over Hard money for purchasing a fix n flip?  As i newbie without a lot of available cash one of the methods of ideas to finance a flip was to use a hard money loan that would loan 70% of ARV, and to use this loan for part of the rehab.  I would need cash for closing and the difference of what the loan doesn't cover from the purchase price after the rehab money is put in escrow.  This is assuming im comfortable with my margins and my monthly payments and holding costs.

Ex. purchase price : 103k

ARV: $165K x 70%=$115500( hard money loan)

rehab: $30k(in escrow)

closing cost and cash needed @ closing $28k (HELOC)

The numbers are just used to give an example and aren't any actual numbers.  I would like to hear the opinions on this type of financing.  Assuming I'm comfortable with my monthly payments and holding cost and aiming for 90 day total turn around,

Michael T. · Answer

If your are able to use a HELOC to buy a guaranteed appreciation property or rental property free and clear, do it.

The HML will cost a lot more from the fees and interest.

In my opinion the best way to get a HELOC is google "HELOC introductory offer" or "HELOC introductory interest rate".

This will give you multiple credit unions, banks and lenders that are typically willing to do a great introductory offer of 1.99% or 2.99% for one year and then a either great fixed rate after the 1st or a good rate plus prime.

In fact not too long ago I completed a HELOC here in Los Angeles at 2.99%.  Much better than a HML at 10-12%

Jay Hinrichs · Answer

And PS of course a Heloc will be about Half as expensive as  a HML if you have the bandwidth to finance the entire project with the heloc then that is a great use of a heloc.. don't use heloc to buy equity in rentals.

Jay Hinrichs · Answer

in my peronsal opinon usuing your home base equity to then go out and buy a rental with basically nothing down that makes you a 100 or 200 a month is very very risky.. unless your buying in a market you have a very good chance of some major appreciaiton.

other wise. your risking your home base equity for what is essentially a very little amount of money given risk. one bad tenant and can turn it upside down.

to use the money for fix and flip make profit pay it off I personally think that works.. but again you do risk your home equity if the flip flops. LOL,, I am just old school leave your personal resi alone pay it off .. recuse that is your true retirement.

Jay Hinrichs · Answer

biggest mistakes flippers or new flippers do is under estimate costs  ,  closing costs, sellers credits , and holding time

Jay Hinrichs · Answer

90 days is a nice goal that is rarely achieved so I would always pencil this stuff for 6 months.

and on starter housing like this also keep in mind your sales cost will be 4 to 6k higher virtually every buyer in that asset class will need YOU to credit them closing costs off the price of the house.

if you do better fine but that's been my experience over the years.

Jay Hinrichs · Answer

keep in mind I am at the end of my real estate journey so ultra conservatism is the rule for me.. although I can say never used my equity in a home for future financing.. I did make a lot of tax free section 121 money that I then put into new deals. but kept what ever home I was in with low first mortgage.. always wanted a fail safe.   and probably the only reason I made it through the GFC fairly intact

Cory Collins · Answer

@Michael Tripp thanks for that tip

Jonathan Taylor · Answer

@Jay Hinrichs Great tips all around but what is Section 121 money? I haven't heard that before, could you elaborate please?

Allen J Washington II · Answer

What is the best way to invest if i have no money. I'm DEAD BROKE driving for dollars!! I see HUD homes online that's foreclose with great rental potential. And i had a few wholesaling appointments with no good deals yet. I have an appointment this Sunday before Martin Luther King day. I had a full appointment schedule all last weekend. What can I do?  Would a Home from HUD with great rental potential be a good start

Cory Collins · Answer

@Jay Hinrichs in this scenario im looking to do a flip not a rental.  However i have run the numbers to make sure it will cash flow if i needed to rent it out because i was having difficulty selling.  If that info helps

Is there a benefit from HELOC vs Hard Money?

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