BRRRR using a HELOC for down payment

[Paul Evans Jr]

My wife and I found a BRRRR deal, but we don't currently have cash on hand for the down payment. We were thinking of using a HELOC on another property to finance the down payment. The property is a great deal… you can't get anything at this price unless it's absolutely crap. And this one just needs cosmetic upgrades (as far as we can tell). Anyways, here's the deal:

Purchase price: $258,000

Down payment: 20% ($51,600)

Upgrades: ~$8,000 + lots of personal labor

Value after upgrades: $325,000-$335,000

I put this into the BiggerPockets calculator, and we’re looking at leaving $20,000-30,000 in the deal and cash flowing $120-200/month.

Would it be stupid to use a HELOC for the down payment if we're not able to pull it all out after the refi? Seems like a good deal, but the risk of over leveraging kind of scares me.

[Ned Carey]

@Paul Evans Jr yes using a HELOC for a down payment on another property can be a good strategy. However it can also be a terrible strategy.

How much money will the HELOC be for? How much do you have in cash reserves now. Have you figured the cost of carrying the property while renovating? What is the rent you are expecting and are you confident you can get that with the upgrades you plan? Do you have the skills to do the work to a quality level that the market expects. Have you figured in the costs of closing and the cost of the Hard money loan? These are just some of the questions you should ask yourself.

Frankly $8k in upgrades seems like it is probably too low. We spend that much on "ready to rent" properties. If you are getting a significant reduction from market prices it probably need more than $8k in work. 

I'm not trying to rain on your parade. This might be a good deal, but i want you to be prepared and have realistic expectations.