@Phil T. great question. Here are some thoughts on BRRRR as a whole, not just the HELOC scenario
BRRRR strategy has quite a few levers and those levers will all potentially be affected differently. All in all, I see the BRRRR model having a larger risk/reward equation than we've seen in years past. The lending side brings risk, but I think there will be more reward if the project is successful and a fixed term refi happens in the end.
Purchase price - I think we can expect competition (demand) on the cash required purchase side to lower, so there's a high probability purchase prices going in can be better. I've been saying this for years that acquisitions will get better once the market stops saving flippers that are making poor purchase decisions.
Renovation cost - At least in Portland labor is so flipping expensive and costs have been increasing so much that I'm excited for this change. I'm expecting with high probability that renovation costs will go down with a recession.
ARV - There could be a hit to the values on the back end for the refi, but honestly I think the better acquisition prices and better renovation costs will make this a moot point. Also, the finance strategy on the ARV (retail) level is completely different than finance on the brrrr acquisition side. See below for my thoughts on the refinance.
Rental rates - I'm less concerned about this in our Portland market as rental prices are pretty sticky and we still have an overall housing supply shortage, especially in the single family market. That's probably not the case for many markets, which I'm no expert on. I'm always a fan of stress testing BRRRR on the front end by using less than market rents in the proforma for acquisition. When using below market rents, the end result is usually more $ back on the refi and better cash flow on the back end. If rental rates go down then there's obviously room for that to happen as well.
Refinance - This is the biggest wild card because we truly do not know what lenders will be thinking. Also, their changes will be made based on things outside of just the real estate market (macro more than micro actions). There's probably a high probability that interest rates will go down. This is huge in the ability to refinance as many lenders look at DCR (debt coverage ratio) for the refinance. The DCR has been the deciding factor for the final loan amount on all of our BRRRR refinances so even though values may go down, our loan amounts could still go up because the DCR with lower interest rates will allow a higher loan amount.
The biggest concern on the lending side, in my opinion, is how tight will lenders get for investors. Will they simply lower LTV's and require more equity? Will they pull out all together and change their overall lending balance sheets by focusing on other asset classes? How banks react will have an affect on the ARV as well as the ability to refinance out. For this reason alone I would not be willing to use a HELOC on a different property to make this one successful, without assets or cash to pay off the heloc in the event that a refinance does not go well.
