What is the best option for me to purchase?

Question

Hey all take a look at this for me, what is the best option? Thanks

I have a lender in place that can close on a deal at 5% down and overall closing costs are about 11% on a $100K home. I run into DTI issues when I use this lender so the closing time frame his always hectic and down to the last minute. The home should rent $1800 to $2K. The interest rates for this lender are solid generally in the low 6 to mid 6s

Out of pocket I'd be spending a little over $10k and another $5 to $10k on fixing the place up. So all in about $16k to $21k out of pocket. This process requires me to save for 3-4 months between deals

On the other I looked at a 9th month hard money interest only loan that would cover the cost of the rehab but inflate the overall price. I am concerned with whether the refinance will appraise. The numbers are fairly tight. This loan would cost $11-$16k, the renovations would be taken from a draw. I have had poor experiences with that set up.

Lastly, I could just use my heloc. Pull the money from it at 9% interest fix it up over the 2 month hold period and refinance into a dscr loan using an LLC. This would cost us about $4k in fees and principal over the 2 months not including the rehab money. The DSCR would be 1.7 with an interest rate at 7 percent.

Denise Supplee · Answer

Hi @Johnnie Fair, given those options, I’d lean toward the HELOC >DSCR route if your HELOC capacity is solid. It keeps execution risk lower, avoids tight appraisals and draw headaches, and lets you move quickly without DTI stress. A 1.7 DSCR gives you good refi cushion, and the short-term 9% cost over two months is relatively cheap compared to the uncertainty of hard money. The low-down lender works, but the constant DTI pressure and slow pace can limit scaling. For tight deals, reliability and control usually beat saving a few basis points.

Alex Morales · Answer

Good breakdown of your options. I'd echo the HELOC > DSCR recommendation, especially with a 1.7 DSCR - that gives you solid cushion for rate fluctuations and vacancy.

One thing worth stress testing though: the $100k purchase with $1800-2000 rent is a strong rent-to-price ratio (1.8-2%), which is excellent. But make sure you're running the full PITI plus vacancy, maintenance, and cap-ex reserves when you model the refi. A 1.7 DSCR at 7% on a $100k property means your monthly payment would be around $665 (assuming 30yr am), and with $1800+ rent you have plenty of room - but factor in taxes and insurance which can eat into that margin.

The hard money route isn't necessarily bad if you have confidence in the ARV and your contractor's timeline, but the draw process headaches you mentioned are real. If the property needs only $5-10k in work, the HELOC simplicity probably wins. If it's a bigger rehab scope, HML with a reliable draw process might make sense.

What market are you in? That'll change the insurance and tax picture significantly.

Erik Estrada · Answer

It sounds like the HELOC will give you more control and leverage over this deal. You might want to be conservative on the ARV as value has been very tricky on the refi side.

Frankie Vozzi · Answer

Johnnie, looking at those options, the cleanest path is usually the one that removes DTI friction and refinance risk. Long-term leverage tends to beat saving months between deals.
The key is keeping the refi conservative so the numbers stay durable. I sent you a Dm let's connect!

Pierre Guirguis · Answer

You have already done most of the hard work by laying out the options clearly. The decision here is less about rates and more about risk, speed, and balance sheet exposure.

The 5% down route is cheap capital, but it is also the slowest and most fragile if DTI is tight, especially if every deal turns into a last minute scramble. That tends to cap how fast you can repeat.

Hard money provides speed, but when numbers are already tight, appraisal and refinance risk become the real issue rather than the interest rate. If you have already had rough experiences there, that is usually a signal.

The HELOC option is often overlooked, but it is also the most flexible since you control timing and draws. The real question is how comfortable you are temporarily cross collateralizing to keep momentum moving. With a DSCR that strong on the refinance, execution risk matters more than headline cost.

There is not a universally best option. It comes down to whether your priority is minimizing cash out of pocket, maximizing speed, or reducing downside if something slips.

Scott Chilton · Answer

@Johnnie Fair, if you step back and look at this from a risk and repeatability point of view, the HELOC option looks like the cleanest path for what you are trying to do.

The first lender works, but the constant DTI pressure and last minute stress will slow you down. Saving three to four months between deals is expensive in a different way because you miss opportunities and lose momentum. The rate is good, but the process is not scalable if you want to keep buying.

Hard money can make sense when the spread is wide, but in your case the numbers are already tight. When the deal depends on a strong appraisal, adding inflated loan costs and draw delays just adds risk. If that appraisal comes in light, you are stuck holding an expensive loan with limited options.

Using the HELOC for a short two month window gives you speed and control. You avoid draw headaches, you keep rehab moving, and you refinance into a DSCR loan that already pencils well at a 1.7 ratio. The slightly higher rate is offset by lower fees, cleaner execution, and less stress. That matters because clean deals get repeated, and repeated deals build wealth faster than chasing the cheapest rate on paper.

If this were my deal, I would use the HELOC, execute the rehab quickly, then lock in the DSCR loan and move on to the next one. It protects your downside, keeps cash flexible, and puts you in a better position to grow instead of constantly resetting between deals.

Andrew Postell · Answer

@Johnnie Fair we can't tell very much by your post here. What property are you buying? A primary home? Or an investment property? Usually property numbers help us know the deal better. It sounds like your lender in the first paragraph is a primary home loan? Generally speaking, we don't use this technique for the BRRRR Method. This the BRRRR Forum (sometimes people can't tell what forums - no biggie, just wanted you to be aware that we are usually talking from a BRRRR perspective here).

In the 2nd paragraph, it seems like this is more of a BRRRR Method transaction. And yes, you do need to know your ARV...and rehab amounts...and closing costs, and holding costs, etc. to make a BRRRR be successful. Now, I would say that your initial lender does an appraisal (usually) so if their appraisal is off when you refinance - that's an issue. Meaning, an issue large enough to never work with them again. I would guide you here that your ARV is your responsibility but if your HML is not inline with your estimations, then it's an issue.

In the 3rd paragraph, this also sounds like a common BRRRR structure as well. Many investors like using HELOCs. They do lessen your fees. Just keep in mind that all the risk is on your now. Nobody is doing an appraisal for you. Nobody is checking your work. Our partners do help us with some protections. The less people you have looking at your deal, the more it's on your shoulders. If you are ok with this, then execute in this manner. I think you meant the DSCR 1.7 as 1.7 points? Is that right? You weren't meaning a 1.7 ratio were you? Often a ratio is important when speaking with DSCR loans - 1.7 would be very unusual. Just want to make sure on that one too.

What is the best option for me to purchase?

What is the best option for me to purchase?

Most Popular Reply

7 Replies