Posted by John B. Corey Jr. on August 12, 2005 at 12:59:27:
I think the answer will vary based on a few variables.
Are you expecting to hold long term or are you using a L/O as a way to sell? How long of a holding period?
You want the HELOC capital to be available when a deal happens. Hence it will be better to refinance or otherwise free up that capital each time it is use so you are ready for the next deal.
If the deals do not cash flow then look at other ways to get the deals off your books so to speak. You do not want to have a lot of loans where you are showing a cash flow loss on paper. Remember most lenders expect that 75% of the rent is available for the mortgage payment so less even a positive cash flow deal can be negative on paper when you adjust for all the related costs.
You can flip such deals but you have to be careful about the seasoning. As a preforeclosure there is less of an issue depending on how you have taken title and if there is a sale price recorded. If you moved the home into a trust and then changed the beneficial owner there is really no recorded sale price.
By flipping some you can raise more capital that can be used to help fund future deals.
Question to you.
You made no mention of the average price for the deals you would be buying. If you are buying subject-to the existing financing then the capital you need is greatly reduced. If you are buying for cash at a knock down price what is your assumed average price? In some markets that I deal in $150K would buy 5 SFR properties as a cash buyer. In other markets (the ones I avoid), $150K would be the 10% down payment.
If you buy right and the prices are low the rents will cover hard money loan terms so you have unlimited capital in that case.
Chelsea Private Equity LLC