April 20

Does it make sense to purchase rehab with a HELOC and then do a conventional refinance?

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Are you a real estate investor looking to maximize your returns? One common strategy is to purchase or rehab a property using a Home Equity Line of Credit (HELOC) and then refinance conventionally. But does this approach make sense for everyone? In this blog post, we’ll explore the advantages and limitations of this strategy and provide some tips for maximizing your real estate investment.

Advantages of Purchasing or Rehabbing with a HELOC

One of the main advantages of using a HELOC is that the cost of capital is relatively cheap compared to private or Fix and Flip loans. This means you can access funds at a lower interest rate and potentially increase your returns on investment. Additionally, using a HELOC can provide you with more flexibility in terms of the amount of funds you can access and how you use them.

Limitations of Purchasing or Rehabbing with a HELOC

However, there are also limitations to using a HELOC. One challenge is the seasoning requirement, which refers to the length of time you need to hold the property before you can refinance it conventionally. This requirement can vary depending on the lender and the type of loan, so it’s important to understand the specific terms of your HELOC before moving forward.

Another limitation is that conventional lenders may be hesitant to refinance a property that has been recently purchased or rehabbed using a HELOC. In this case, you may need to explore other options, such as delayed financing or finding a lender who is willing to finance 100% of the property.

Tips for Maximizing Your Real Estate Investment

To maximize your real estate investment, it’s important to consider your comfort zone and your long-term goals. While using a HELOC can provide you with cheap capital, it’s also important to keep dry powder or reserves for future investments or unexpected expenses. Additionally, you may want to explore other financing options, such as private or Fix and Flip loans, to diversify your portfolio and reduce risk.

Another important factor is to document all of your expenses and keep accurate records. This will make it easier to refinance conventionally when the time comes and potentially increase your chances of getting approved for a loan.

Final Thoughts

Using a HELOC to purchase or rehab a property and then refinancing conventionally can be a powerful strategy for real estate investors. However, it’s important to understand the limitations and potential challenges of this approach and to consider other financing options as well. By keeping your long-term goals in mind and being strategic with your investments, you can maximize your returns and build a successful real estate portfolio.


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