[Juan Torres]

Looking into real estate investment strategies, it been really intriguing to me on how using a First Lien HELOC works with the BRRR strategy. As someone who owns rental properties, have you ever considered or tried this approach? I’d love to hear your insights and experiences with leveraging home equity for property investments.

[Greg Valencia]

Hello everyone,

Found this thread and would also like to hopefully get some insights. I’ve been considering utilizing a first lien HELOC as a potential starting point. Could you please share the pros and cons I should take into account? Based on my initial research, I’ve observed an average interest rate of around 11%, which appears to be higher than the current 30-year fixed rate. I acknowledge the increased risk involved, particularly if the initial investment doesn’t yield the expected returns, as I would be responsible for both loans.

What are your insights on this matter?

At present, I’m focused on paying down existing debts while also monitoring the potential downturn in home prices.

I’m eager to begin my investment journey and keen to explore various options. Your invaluable experiences and advice would be greatly appreciated, as they inspire me to take the plunge into the world of investing! I reside in the Katy area but have my sights set on investing anywhere within the greater Houston metro area, particularly in smaller multifamily properties as a starting point.

Many thanks!

[Jim O'brien]

If you’re planning to borrow all the money for a BRRRR deal, it could get pricey. I’ve learned that there are more costs to consider than just buying and fixing up the property. There are other expenses like borrowing, holding, and refinancing that can add up to a lot. So, it’s important to add up all these costs carefully to see the full picture.

[Patricia Frawley]

I still believe that 1st lien HELOCs are great options to have. Having flexible loans allows you to borrow money for a brief period and then repay it. This seems much cheaper to me than committing to a cash-out loan for several years, where you’d pay interest even when you don’t need to use your money. The savings also depend on you finishing your project on time and returning the money after completing the BRRRR strategy. Hope that helps!

[Greg Valencia]

Patricia – Thanks for sharing your insights. I believe your point about the shorter repayment time reducing exposure to the full interest rate was spot-on. As others have mentioned, ensuring all costs are factored in is crucial.

Appreciate you guys!!

[Sandra Riccitelli]

If you have access to a HELOC, that’s the way to go. I can tell you there are better rates available for HELOCs. Borrowing $150K the traditional way might cost you anywhere from $12-15K in interest and points for 6-10 months. While hard money has helped me acquire many properties, it’s the riskiest form of financing, especially for beginners.

If you have the equity available, go for it. I did it and still use mine to this day. It relieves the pressure of making a bad decision. However, keep in mind that I still use hard money, but only if the company offers a program that doesn’t charge interest on funds in escrow.

[Greg Valencia]

Hi @richiesandraagmail-com

It’s intriguing that you favor that over conventional methods! I see that the shorter loan repayment period should help offset the higher interest rates. I’ll keep researching and bear it in mind as a tool to kickstart my portfolio. Thanks for sharing this!

[Garry Moore]

I think that a HELOC is going to fall in between your conventional money and hard money cost wise.

The crucial step at the beginning is to thoroughly analyze the deal with your financing terms to determine its feasibility.

While leverage can greatly boost your real estate holdings, it’s vital to ensure you maintain cash flow as you expand.

[Greg Valencia]

Hey Garry – I believe I need to delve deeper into underwriting. While it encompasses certain variable costs, I’m hopeful there has to be some rules of thumbs I can learn to apply! Thank you!