Hi BP Crew,
I want to understand (sorry if this has been asked before) in the BRRRR property is it better to do HELOC instead of Refinance? Usually the refinance has cost like title search, closing cost etc vs HELOC is usually no cost.
Can anyone help me understand why refinance concept is more practiced?
If you follow the BRRRR strategy and paid cash you shouldn't have an existing mortgage. The goal is to lock in a fixed rate for 15/30 years and let the tenants pay off that property. If that's the goal a HELOC is not the best choice. Interest is not tax deductible, interest rates are higher, and some are variable. Despite the closing costs associated with a Cash-out REFI you make more money in the long run.
The only nice thing about a HELOC is that it's a line of credit, not a loan. Once it's paid off, it can be reused. But, as @Jaron Walling pointed out, there are a lot of cons to HELOC's. I have one, and I won't get another unless I can get a fixed rate.
I am in the process of getting a HELOC on my current single family investment property so I can use it as a down payment on my next property. However, I plan to do BRRRR, but my exit strategy is to refinance it in to a 30 year loan and using the gained equity to pay off the HELOC. Does anyone have any advice on doing it this way? The other option to grow, would be to sell my current house, and then upgrade to a duplex or something.
@Account Closed I think that's a valid strategy but it kinda robs Peter to pay Paul. It comes down to the cash-flow and what you're happy with and how much reserves you need. If the HELOC doesn't damage the investment I'd try it. You could sell, 1031 into something bigger, workout a seller financing deal, you have some options.
I am in similar situations. I do have money to put down as down payment but looking at alternative options to obtain a HELOC for a down payment and use the COH for rehab if needed.
Once rehab is done, refinance and pay off the HELOC. Just need to punch in the numbers to see the cash flow.
Heloc’s are a huge liability in terms of their fluctuating interest rate as well as the ability for the bank to call the note due at any time...
I have a client with a horror story of when he leveraged his home in a million dollar heloc for business capital and the bank called it due in two months... not a fun conversation to have with your spouse.
Refinancing under great terms is always the best way to go. Feel free to reach out if you need assistance with landing a 4.25%, zero income verified, 30 year fixed rate loan.
Wow. That is something scary. Yeah I will certainly connect with you to learn more about various options.
Thank you 🙏
There are more costs associated with the refinance instead of the HELOC, but it may be something worth paying for.
The refinance will allow you to get a longer term; 15 or 30 years instead of a HELOC which normally is a shorter-period. I see them mostly for 5 or 10 years.
HELOC's are mostly variable rate while refinance, you can pick between a fixed, ARM or variable.