New Investor. HELOC vs Hard Money?

Question

I hope this question is allowed, as I'm looking for advice, but also maybe for contacts.

My basic investing plan revolves around a $200k HELOC on my primary residence right now. With that, I've placed contracts on two properties that are waiting to close:

Property 1: SFH. $70k purchase price. $80k rehab. Conservative ARV of $240k.

Property 2: 4 unit MF. $45k purchase price. $70k rehab. Conservative ARV of $200k. Could lower rehab costs and sell as an investment for closer to $35k investment/$150k ARV).

Current plan is to purchase both ($115k), rehab Property 2 (probably), then sell it and finish Property 1, which is fine and I'm good with that plan. It might be a little slower, but it's safer in my mind. I did reach out to a local Hard Money lender recently about financing the purchase price of Property 1 if I fund the rehab with my HELOC and they are interested, but I haven't locked anything in with them.

My question is: am I crazy? Should I do this a different way? I made my introduction post and got four or five messages about lending options. Just wondering if my situation actually does lend itself more to hard money lending since my credit score is around 800 and I only plan to hold these for 3-4 months, or if I just stick to my initial plan and be happy.

Would LOVE experienced investor opinions on this, because either option makes sense to me, and I'm struggling to see the cons either way aside from the HELOC being a slower process. Thanks!

Chris Seveney · Answer

The interest rate on your HELOC Most likely will be significantly lower than your hard money Loan. So that is something to consider (borrowing costs)

Robin Simon · Answer

What is your rate on the HELOC - impossible to really weigh the options without that info.  Also, you mentioned "HELOC being a slower process" - can you elaborate there?  That stuck out because if you have the HELOC fully closed and everything, wouldn't it be a faster process than full one-off hard money loans?  Seems like something is missing

Erik Estrada · Answer

I guess it will come down to how experienced you are. If you are a serial flipper and can handle multiple rehabs and have your contractor, budget, and clear exit plan dialed in, then combining both will help you preserve the most amount of capital and be able to finish both projects.

If this is your first rodeo, juggling 2 projects will be very stressful. There is a steep learning curve most new investors go through, so keep in mind, it may be likely you will need to dip into your savings or carry the debt a bit longer than expected. I think the safer bet is focusing on one and using it as a learning tool rather than relying on the profit/income. Using only your HELOC will be less of a headache than trying a hard money loan and overextending yourself too early.

Joshua Pfeffer · Answer

@Robin Simon interest rate in the HELOC is 5.5%. It would be slower because I'd have to finish and sell the multifamily before I could rehab the single family. I only have the capital to finish one project or the other once I purchase both properties. Hard money could let me finish both properties at the same time.

Terry Garrett · Answer

I think the liquidity piece is important, especially if you’re working on two properties at the same time. Sometimes paying a little more for financing can make sense if it keeps cash available for the next problem or opportunity. I’d probably compare the total cost and flexibility of each option rather than just the interest rate.

Mike Grudzien · Answer

I agree with Chris.  My thoughts exactly.

LaTarence Dunbar · Answer

Joshua, I don't think you're crazy at all. With an 800 score, two properties under contract, and those ARVs, you have a few different ways to structure this. i would look at the financing on each property separately rather than automatically tying everything to the HELOC. Depending on the exact scope of work, timeline, and exit strategy, short-term acquisition + rehab financing could make sense and potentially preserve some of your HELOC liquidity. i'd be happy to take a look at the numbers and see whether there's a better structure than simply funding everything yourself. If you're open to it, feel free to DM me the property details and I'll take a look.

New Investor. HELOC vs Hard Money?

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