Looking to purchase our 3rd small multi family. Debating where I should get the money from. I have narrowed it down to taking it out of my own house; but not sure which way to go. I spoke to our lender and they suggested a HELOC OR a Cash Out Refi at 2.5%/15 year note. We only owe $140K on the home and it is worth about $420K. We would be taking $60K out of the house which still leaves us with plenty of equity. We are 9 years into a 20 year note. I know the logical thing would be a HELOC since there are no closing costs and you only pay for it if you use it, etc, BUT I hate having that as a loan that will come directly out of my monthly cash flow. Our properties are typically move in ready or close to it, and we hold onto them. I also hate the idea of a variable rate. Finally, if we did the cash out refi; our monthly payment only goes up $16. Obviously, I'm leaving toward the cash out refi but am wondering what all you smart people say?? Thanks so much!
Lock that 2.5% rate in! Take advantage of the cheap money while it's available. Always good to see fellow Western Massers on here!
Thanks @Matthew Crivelli I was thinking the same. Our current rate isn't horrible at 3.5% but I still think the money is so dirt cheap and who knows what could happen with the HELOC rate. I think I would be prone to do the HELOC if I was going to be flipping or BRRRR'ing the property so we could pay it off right away vs a buy and hold. Nice to see another local as well! Not many of us from Western Mass - always from Boston! LOL
@Jenna Banaitis Contrary to popular belief the state doesn't end at Worcester LOL. Good luck with what ever you decide!
@Matthew Crivelli . So true! Lol
Sounds like HELOC is the way! Also helps me answer the same, I have a current HELOC but have not utilized it yet, looking for the right opportunity. I'm in the Fort Worth, TX area seeking a Multi-Family or duplex
@Matthew Crivelli Are you telling me there's something past Route 495??
I haven't done a lot of work with HELOC but I work alongside @Corby Goade who uses them all the time to take out money to invest into other properties. Reach out to him to get more insight as to why using a HELOC is a great way to get funds for other investments!
@Jenna Banaitis - I recommend a HELOC so you can access most if not all of your equity and not pay closing costs. This will allow you to expand beyond this third multi family property since you have a decent spread on debt vs. value of the home. I utilized a HELOC to buy my next three properties so always happy to connect and discuss my experience.
In addition, if you are interested in meeting other investors in the area, I host a local Worcester meetup every month. It's a great place to network with other investors in the area, learn, and its completely free. We always have experienced guest speakers present on cool topics too such as building their portfolios and cost segregation. Feel free to DM me. The info about the meetup is also below:
I'm with Andrew on the HELOC. This way you can borrow from yourself and pay yourself back and keep things simple and the properties separated. If you have the good cash flow you can use that to pay back the down payment from your HELOC.
What would be your terms for a fixed 30 year be? I don't think money will ever be cheaper than it is today. Locking in a fixed could be attractive even with closing costs if rates rise on a heloc.
Thanks @Lexey Neitzel for the shout out!
I'm a huge fan of the HELOC- people tend to get caught up thinking that the cash out is better because the rate is typically lower, but that's really the only benefit.
HELOCS are usuallly free to close, zero closing costs, and you don't pay a penny until you use them. That means if you take four months to find another investment property, you didn't just pay four months of interest for nothing.
If you already have a deal in hand, or better yet, under contract, a cash out might be a better option, but in almost any other situation, a HELOC will be a better choice.
We did both recently. We took the bulk out in a cash out refi, and also got a 40k HELOC.
If you are using the funds for a down payment on a new investment that you will be holding for a while, it makes sense that you would want to pay the lowest percentage possible by going for the cash out. Rates are only going up from here, so the HELOC rate will just continue to climb. Also, some HELOCS require you to reestablish them at relatively short periods.
@Jenna Banaitis if you are doing a value add strategy where you will force appreciation and then refinance the Heloc could make sense. However, they can be frozen and even called due (though rare, it’s in the fine print). I’m also not a fan of variable rates especially when fixed rates are at historic lows. Is that your forever home? If not, I would consider doing a cash out refi and get as much cash out as possible so you can scale. This of course depends on your goals, risk tolerance, overall financial position, etc. Borrowing against a primary is the cheapest money you will ever borrow!