Does This BRRR Strategy Work

Question

So I bought a 2,200 sf duplex in Nashville for 140k. It got appraised at 305k! I got a HELOC at 85% LTV and am using no more than 40k of the 118k I pulled out in equity to renovate the property. I was considering utilizing the remaining HELOC money as a down payment and rehab money for my next property.

Is this a dumb idea? Is there a more efficient way to make the most out of my current situation?

Evan Polaski · Answer

@Rodney Williams, you are considering what many people do.  As Mason noted, the HELOC is more likely to get called, and I am sure there are several people out there that can attest to this happening, but it hasn't happened to me.  And short of same major credit crunch effecting the bank's ability to fund loans, I don't know why a bank would pull a performing, fairly lucrative business.

I use my HELOCs for flips, and while I haven't been pursuing BRRRRs, I would use it there too to finance the purchase and rehab, hold for seasoning.  Then refi the new property to pay off the HELOC and repeat.  On flips, it is the same, but pay off HELOC when I sell.

Mason Hickman · Answer

@Rodney Williams

Not necessarily dumb but I would consider refinancing in order to get long term fixed interest rate debt while rates are still low. The HELOC carries more risk in getting called than the fixed mortgage.