Sell, Heloc, or cash out refinance?

Question

Hello all, First time poster here. Im trying to decide my best course of action to get into the rental game, but also need a larger house for my wife and 4 kids. Have alot of equity built up in our small home so debating if I should just sell it, take out most of the equity on a cash out, or take a line of credit interest rates are about the same but 15year max term on line of credit. I tend to hear more people take the cash out refinance option when keeping a property as a rental is this just to keep the payments lower or are there other benefits? My goal would be to put 20-30k into existing home, have money for the down-payment on the next as well as rehab money. Any advice would be greatly appreciated! Thanks!

Alan Asriants · Answer

Hey Ryan, taking out a HELOC is better for quick turnaround projects, typically not advised to fund long term retnal properties. HELOCs work great for flips, wholesale deals, etc. They also work great if there are some things you need to repair asap and don't have the cash to do so - IE roof.

Most people will do a cash out refi, rent out the old house and then use the funds they pulled out to buy another property. Why this is better than a HELOC for most? A cash out refi gives you a fixed 30year loan typically that doesn't chagne with the market. If rates go up, you are protected, if rates go down you can refi. Its the safer approach. Heloc rates change with the market. So if there are major upswings in rates, your cash flow and returns can be affected heavily.

If its possible, I would likely do both. Do the cash out refi to put that money into the next property at a fixed rate - make sure you're not taking out too much that you can't cash flow, and once you buy your next home, look into opening a LOC. This way you have the HELOC as emergency funds, or quick flip funds. A heloc is cheaper than getting hard money!

The reason I would do HELOC after the purchase of the next home is because you might increase your DTI too much. Talk to a reputable lender and a local agent before making any moves and do whats best for your scenario.

Caleb Brown · Answer

Personally I would keep the starter home but not touch the equity to up size your house. Save up the down payment separately to use on your new personal home. Yes you could do a refinance and take the equity to put towards another home. If you do leverage the equity with debt make sure to run numbers to see your cashflow. When you leverage your equity your margins will get slimmer. One other tid bit, have reserves. If you are going to move into a bigger home (higher cost of living), leverage the equity and own a rental you need a nest egg.

Ricardo R. · Answer

Hey Ryan,

Good question — you’re thinking about it the right way, weighing your options before jumping in. The best move depends on whether you want to keep your current home as a rental or cash out and reset clean with the next one.

If you want to keep it, a cash-out refinance usually makes the most sense. The big benefit over a HELOC is that it locks in a fixed rate and stretches your payments over 30 years instead of a 15-year draw/repay period. That lower payment makes the property way easier to cash flow once it’s rented. Plus, refis free up a lump sum you can use for the down payment on your next house and some light rehab — exactly what you mentioned.

The downside is you’re resetting your mortgage and eating closing costs again (usually around 2–3% of the loan amount). But if your current interest rate is low, you might consider a second-position HELOC just for the renovation/down payment money — especially if you plan to refinance later when rates drop.

If you sell instead, it’s simple — no debt juggling — but you’ll lose the chance to hang on to a property that could cash flow and appreciate long term.

Here’s my quick example:
Say your house is worth $300K and you owe $150K — that’s $150K equity.

• Sell: maybe walk away with $135K after closing.
• Cash-out refi to 75% LTV: new loan about $225K, gives you roughly $75K cash out after payoff and fees — enough to update your current place and put down 10–15% on the next one.

Sell: maybe walk away with $135K after closing.

Cash-out refi to 75% LTV: new loan about $225K, gives you roughly $75K cash out after payoff and fees — enough to update your current place and put down 10–15% on the next one.

If your current home rents well after the upgrade, that’s the smarter long game.

If not, selling might be cleaner — take the win, roll it forward, and buy the bigger place plus a rental later when you’re not juggling two moves and four kids.

You’re thinking like an investor already, though — run both versions in a simple spreadsheet and see which one gets you closer to your cash flow or portfolio goal; Ryan, I really hope this helps you a bit, I sent you a DM on BP... it's one of the reasons I do this, I hope you can assist. Thank you in advance.