Understanding the numbers of the deal - when using HELOC
This is a cash buy from a seller. He is motivated, and the numbers look good, but I can't get my head around the impact of using my HELOC. Also need to understand the Quit Claim deed. Purpose is rental for eventual refinance, then BRRRR. The particulars of this little 1/1, 500 sq ft. house:
Sell price: $3000 (no kidding) Structurally sound, not lived in for 15 years - he always planned on fixing it up and now he's 81 and must sell). C neighborhood.
Repairs/holding costs: $17,500
All in: $20,500
Rent comps: $445
CoC return: 10.7%
1% rule: 2.2%
Actual cash flow: $183/mo
It's 100 years old, so I'm factoring into my expenses10% Capex, 10% ongoing maintenance. My 50% exp rule is at $223, and proforma at $240, so pretty close.
Instrument: He wants to quit claim deed the property.
Using HELOC funds at 4.99%
1. At face value, the deal looks good, except do I factor in the cost of the money I'm using? If so, does this put me in negative cash flow?
2. If not, will I be able to refi after 6 mos, with the HELOC affecting my DTI ratio?
3. If not, how do i unlock my capital to get to my next deal?
4. Am I looking at this properly? Should I be considering break even? What are my options?
Any assistance would be greatly appreciated. Thank you.