Does a HELOC actually work for a first flip or is hard money the only realistic option
I came into this thinking a HELOC was the smarter move because the rate is lower and you avoid points. I have about $60k in equity in my primary in Phoenix, which pencils to maybe a $48k line after they haircut it. Problem is I found a property in Mesa that needs $35k in work and is listed at $180k, with comps sitting around $245k post-reno. The numbers work but the HELOC does not get me there alone, and the bank told me upfront they do not want to see the funds used for investment property rehab. So that option got complicated fast.
Hard money on the same deal comes in around 12 percent and 2 points from the lenders I have talked to, with a 6 month term and draws tied to inspection. On a $180k purchase that is a real cost, probably $4,500 in points plus interest while I hold it, call it another $9k if I use all 6 months. So roughly $13,500 out the door just to borrow the money, before I touch a single wall.
What I could not find a straight answer on was whether a first-timer can even get approved for hard money without a track record. Every lender I spoke to either wanted 2 completed flips or a co-borrower with experience. One guy in Tempe said he would do it if I came in with 25 percent down and a licensed GC under contract before closing. I found a GC, so that door opened, but it took about 3 weeks of calling around before I found anyone willing to underwrite a zero-deal borrower.
If you are sitting on enough equity that the HELOC alone covers purchase and rehab on something small, maybe it pencils differently. But for anything over $150k all-in, I think you are talking hard money whether you want to or not.
