Using HELOC works best when refinancing BRRRR

11 Replies

Hello everyone, When using the BRRRR strategy I always notice the refinance has many questions. A Home Equity Line of Credit seems to be the best option to use when refinancing a property using the BRRRR.

I took out a HELOC on my first rental property in 2015. I got my HELOC from my credit union at 15 years interest only 3.75% APR with a promotions rate of 2.99% for one year on the first withdraw. I paid 0 closing cost as long as I don't close the account within 2 years and the appraisal was fast, I just needed $230K and it close in 4 weeks.

I called many banks and done many research about applying for a HELOC or Conventional/other loans to refinance my next BRRRR property. The result HELOC WINS.

1- HELOC has zero closing cost.
conventional/other loans you pay closing cost.

2- HELOC has 2 ways of doing the appraisal at no cost and faster.
Conventional/other loans 1 way and sometimes at your own cost.

3-HELOC close faster 3-4 weeks.
Conventional/other loans need at least a month.

4-HELOC offer a fair 4%-5% on investment properties.
Conventional/other loans offer about the same if you pay points on some.

5-HELOC has no seasonal 6-12 month period.
Conventional/other loan have the seasonal rule.

6-HELOC lets you refinance to increase your line of credit if you notice your home is worth more than it did when you first applied at no cost.
Conventional/other loan is a period you must wait to refinance and most have a early payoff % or fee and if you get denied, you are stuck with paying the fees it took to process your application and such.

7-HELOC There's no mortgage loan limit of 4 or 10, you could have HELOC on all your properties.
Conventional/other loans there is a 10 loan conventional limit then you would have to settle for a portfolio loan which the APR is much higher.

HELOC has only 1 down fall, the property must be free and clear to maximize the loan, so if you have a HML, it won't work and most HELOC want first lien.

PLEASE NOTE-not all conventional/other loans are what I had mention. I'm sure some of you got a great APR,no closing cost ,fast closing and etc, but majority of loans are in comparison.

Awesome stuff here. Thanks. I spoke with WF the other day on this and they said rate is prime + 1.xx (cant remember the exact markup). But basically, the rate was 5.25%. Did you say you received your HELOC on your rental at 3.75%, or is that on your primary residence? Thanks!

@Patrick Ryan the 3.75% was on my rental because that was also a promotional rate, credit unions seem to be more flexible and forgiving on some matters. Now the rate is at 4.75% which is still great at penfed CU.

@Patrick Ryan I spoke with WF the other day too regarding a HELOC (on my primary residence). There rates and terms were awful compared to the credit union that I spoke to.

I also agree with this. I plan on doing BRR(H)R. (HELOC). When you do a CORF you only use that money once and now you are paying for that borrowed money for 30 years on your new refinance. With a HELOC I borrow it to buy more, then pay the HELOC down as fast as possible and use it again before the deadline arrives where you can't borrow anymore.

Thanks for posting this. It answers a couple questions I had about a BRRRR project I am currently working on.

It seems that another potential downside of this method is that you somewhat sacrifice the "loan paydown" wealth generation part of the equation. 

Bumping this back up. Are others using the HELOC in their BRRR strategy?

Originally posted by @Cliff T. :

Bumping this back up. Are others using the HELOC in their BRRR stra

I started the process last Friday and will continue Monday. I'm checking a few local credit unions and have already found they have widely different policies.

One universal reaction so far is that the property I'm trying to use has a personal, and therefore unofficial, loan on it with family. No one cares. So long as it's not a "real" mortgage they just brush it off as irrelevant. I guess this is because in the eyes of the law if the proverbial #2 hits the fan the courts will see them as first in line for repayment.

Two of my properties have mortgages at about 1/3 their resale value while the 3rd apparently appears fully owned in the eyes of lenders. It's such an awesome position and I feel like Property #4 is just a couple months away.

Alright I have to disagree here. HELOCs are a great product and I use them for acquisitions and rehabs, but I think you should ALWAYS do a cash out refinance using a conventional or portfolio loan (at least in the current lending/interest rate environment)

- HELOCs are typically variable interest rate - are rates currently trending up or down? (Hint: up). Since this is a LONG TERM loan, lock in the fixed rate!

- HELOCs are amortized over 10-15 years instead of 30 for a regular mortgage loan. The shorter payback KILLS your cash flow.

- Less important, but still a factor: you can’t get a HELOC in an LLC whereas if you find the right portfolio lender you can get a mortgage in the name of your LLC

- It is typically more difficult to find a lender who will do HELOCs on investment properties AND the LTV is typically much lower on investment properties. Lower LTV = less cash out of the deal.

I have a HELOC on my primary and two HELOCs on rental properties. But they are 2nd lien position and I kept the fixed rate mortgage in place. I only draw from the LOC for a new acquisition or rehab, and when I complete a refinance I use that to pay my HELOC balances back down to zero.