Heloc to renovate then cash out refi. Good idea?

Question

I would like to pull out some equity from my primary property so I can start investing in real estate, but my house is in need of some renovation. Is it a good idea to take out a Heloc to do the renovation, then refinance after hoping that the renovation added a decent amount of equity to the property? My estimated property value is $1,300,0000. Remaining balance $400,000. Estimated cost of renovation $300,000. Any advice would be appreciated.

Jeff S. · Answer

@Tiffany Makiya 300k for a renovation is a lot of money. That is the part to focus on. Is it a good idea to borrow against your home and overpay for the work because you have the cash? I'd say no. Secondly can you afford a huge payment? Lenders are more conservative these days which is a good thing.

Brittany Minocchi · Answer

It could be! Sometimes you can find a HELOC with no costs but you have to keep it open for a certain amount of time - I'd get clarifiation from wherever you get the HELOC since your plan is to pay it off when you refi. You'll have to compare the value now to what you think it'll be after the repairs to see if it makes sense to do a HELOC and refi.

Clayton Silva · Answer

Hey Tiffany, this is a great question. We help clients determine which route makes the most sense all the time! One of the best tools out there is a blended rate calculator that can help you determine if HELOC or cashout makes more sense. In your case, my gut tells me just do one cash out refinance rather than a HELOC into a refinance because it will save you from paying two sets of closing costs and title fees. We are licensed in HI and I would be happy to do a free consultation to see which option makes more sense for you. Hope this helps!

Dave Skow · Answer

@Tiffany Makiya- you wont want to refinance your priamry home and lose the 2.875% rate .....I would suggest getting a heloc in place for as much as possible to use for your remodel and funds to use in your investment plans ...... see what the highest heloc you can qualify and obtain .....many heloc lenders have max limits on helocs like 200K 250K some are higher

Henry Lazerow · Answer

I have done this its a great strategy if can find a deal where can cash out refi afterwards, hard part right now is finding deals that cashflow after a brrr its getting very rare.

Tiffany Makiya · Answer

My rate on 1st mortgage is great, 2.875. I am having a hard time getting a good estimate on the ARV. It seems as if prices in HI are pretty different in comparison to the rest of the country. Realistic timeline 6mo not including permitting.

Dave Skow · Answer

@Tiffany Makiya- whats present rate on 1st mtg ? whats projected value on home post improvements ? what is realistic timeline for improvements to be done ?

Tiffany Makiya · Answer

Thank you. Now I have some research to do. Thank you for the advice.

Sayed Jaffar · Answer

Hi Tiffany,

I think any homeowner with a decent amount of equity should look into HELOC as an "emergency fund" option. With that, based on your numbers, I think you should go for a HELOC and I think you should easily qualify for up to $700K as HELOC limit. There is no downside to getting a HELOC, except that if you apply this year, most likely you will be getting a interest rate that will be around 7%-8%. If you find a bank that offer you an introductory rates like 3% or 4% (usually it is good for 2 to 3 years) that would be good.

Tiffany Makiya · Answer

Thank you for your response. I guess I am trying to also tap into the value added after renovation but maybe not worth it to do it like that.

Heloc to renovate then cash out refi. Good idea?

Heloc to renovate then cash out refi. Good idea?

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