HELOC vs. cash-out to buy future investments cash

17 Replies

What are your thoughts on this? If you wanted to pull out ~$150,000 from a free a clear property, to buy (immediately) 3-4 less expensive properties at a distance, would you opt for a cash-out refinance or a HELOC? I am sort of torn on this, but would appreciate any feedback. Thanks!

Originally posted by @Andrey Y. :

What are your thoughts on this? If you wanted to pull out ~$150,000 from a free a clear property, to buy (immediately) 3-4 less expensive properties at a distance, would you opt for a cash-out refinance or a HELOC? I am sort of torn on this, but would appreciate any feedback. Thanks!

Both. Have the HELOC on the ready to capitalize on cash/immediate deals, then do a cash-out afterward, assuming the property is worth buying (strong cash flow and/or appreciation).

Originally posted by @Joe Villeneuve :

What are the terms and qualifications for each? The impact financially from either the HELOC or a REFI will make your decision for you in most cases.

In my case, I use both.

The cash out refi would be approx. 4.375% fixed 30 year loan. The HELOC would be around the 5.0% range. One thing I am sort of confused on, if I ended up getting a heloc and used most of the funds right away, what would happen? It looks like I would have to come up with the funds quickly as opposed to a cash-out refi where it would just be a slow and steady payback.

Originally posted by @Andrey Y. :
Originally posted by @Joe Villeneuve:

What are the terms and qualifications for each? The impact financially from either the HELOC or a REFI will make your decision for you in most cases.

In my case, I use both.

The cash out refi would be approx. 4.375% fixed 30 year loan. The HELOC would be around the 5.0% range. One thing I am sort of confused on, if I ended up getting a heloc and used most of the funds right away, what would happen? It looks like I would have to come up with the funds quickly as opposed to a cash-out refi where it would just be a slow and steady payback.

What are the payback terms for the HELOC?

Heloc you can pay it up and down and reuse it very cheap to close.  Cash out is high closing costs.  You can't pay it up and down and reuse it.  Appraisal is cheaper on a heloc also.  It's like a huge cc.  Now your rates are fixed on a cash out which is really better from that standpoint.  However if you are rinsing and repeating.  Flipping,  heloc is ideal.  

Originally posted by @Joe Villeneuve :
Originally posted by @Andrey Y.:
Originally posted by @Joe Villeneuve:

What are the terms and qualifications for each? The impact financially from either the HELOC or a REFI will make your decision for you in most cases.

In my case, I use both.

The cash out refi would be approx. 4.375% fixed 30 year loan. The HELOC would be around the 5.0% range. One thing I am sort of confused on, if I ended up getting a heloc and used most of the funds right away, what would happen? It looks like I would have to come up with the funds quickly as opposed to a cash-out refi where it would just be a slow and steady payback.

What are the payback terms for the HELOC?

The heloc payback terms are more than likely going to make the cash refi a better deal. My bank has HELOC payments at 1.5% of the amount advanced. Meaning cashflow goes to crap.

as JD said, use the heloc to buy the property, then refi the cash out with a 30 year fixed.

@Joe, I promise I'm really not following you around just to agree with you....

Originally posted by @Joe Villeneuve :
Originally posted by @Andrey Y.:
Originally posted by @Joe Villeneuve:

What are the terms and qualifications for each? The impact financially from either the HELOC or a REFI will make your decision for you in most cases.

In my case, I use both.

The cash out refi would be approx. 4.375% fixed 30 year loan. The HELOC would be around the 5.0% range. One thing I am sort of confused on, if I ended up getting a heloc and used most of the funds right away, what would happen? It looks like I would have to come up with the funds quickly as opposed to a cash-out refi where it would just be a slow and steady payback.

What are the payback terms for the HELOC?

 I would have to get with the lender to get the specifics. I've never done a heloc (somewhat embarrassingly) but the similarity to a "credit card" scares me for some reason.

Originally posted by @Alexander Felice :
Originally posted by @Joe Villeneuve:
Originally posted by @Andrey Y.:
Originally posted by @Joe Villeneuve:

What are the terms and qualifications for each? The impact financially from either the HELOC or a REFI will make your decision for you in most cases.

In my case, I use both.

The cash out refi would be approx. 4.375% fixed 30 year loan. The HELOC would be around the 5.0% range. One thing I am sort of confused on, if I ended up getting a heloc and used most of the funds right away, what would happen? It looks like I would have to come up with the funds quickly as opposed to a cash-out refi where it would just be a slow and steady payback.

What are the payback terms for the HELOC?

The heloc payback terms are more than likely going to make the cash refi a better deal. My bank has HELOC payments at 1.5% of the amount advanced. Meaning cashflow goes to crap.

as JD said, use the heloc to buy the property, then refi the cash out with a 30 year fixed.

@Joe, I promise I'm really not following you around just to agree with you....

You're probably right regarding the REFI being better than the HELOC...and as long as you don't follow me too close...I tend to brake without warning...I guess I just warmed you. LOL.

The HELOC still has it's purpose, if you can access it faster than the REFI. A refi generally has a 6 month seasoning period. I don't want to wait that long to get the cash out and into the next deal, so if the property still cash flows with the HELOC in place, I'll take the money and run...to the next deal, and get my cash moving again...then take out the HELOC in 6 months.

All of this is contingent on the terms of the HELOC.

Originally posted by @George Allen :

Heloc you can pay it up and down and reuse it very cheap to close.  Cash out is high closing costs.  You can't pay it up and down and reuse it.  Appraisal is cheaper on a heloc also.  It's like a huge cc.  Now your rates are fixed on a cash out which is really better from that standpoint.  However if you are rinsing and repeating.  Flipping,  heloc is ideal.  

What if I want to hold the properties I buy with the heloc funds (at least for 3 years). With that said, is it even feasible to use a HELOC instead of a refi?

@Alexander Felice

My current HELOC is interest only for the draw period (which is 5 years) and then converts to a fixed rate for the next 10 years with an interest + principle payment. The HELOC i just applied for 2 weeks ago also has similar terms.

@Andrey Y.

I would go with HELOC assuming the repayment terms are similar to what i have talked about (above). If they are restrictive such as the one Alexander has then go cash out refi.

Originally posted by @Andrey Y. :
Originally posted by @Joe Villeneuve:
Originally posted by @Andrey Y.:
Originally posted by @Joe Villeneuve:

What are the terms and qualifications for each? The impact financially from either the HELOC or a REFI will make your decision for you in most cases.

In my case, I use both.

The cash out refi would be approx. 4.375% fixed 30 year loan. The HELOC would be around the 5.0% range. One thing I am sort of confused on, if I ended up getting a heloc and used most of the funds right away, what would happen? It looks like I would have to come up with the funds quickly as opposed to a cash-out refi where it would just be a slow and steady payback.

What are the payback terms for the HELOC?

 I would have to get with the lender to get the specifics. I've never done a heloc (somewhat embarrassingly) but the similarity to a "credit card" scares me for some reason.

Why should a C.C. scare you? I know the reasons actually, but a REI shouldn't have those reasons come into play if they are using the cards as a form of fast cash, and taking them out with permanent financing within 6 months of use.

Originally posted by @Andrey Y. :
Originally posted by @George Allen:

Heloc you can pay it up and down and reuse it very cheap to close.  Cash out is high closing costs.  You can't pay it up and down and reuse it.  Appraisal is cheaper on a heloc also.  It's like a huge cc.  Now your rates are fixed on a cash out which is really better from that standpoint.  However if you are rinsing and repeating.  Flipping,  heloc is ideal.  

What if I want to hold the properties I buy with the heloc funds (at least for 3 years). With that said, is it even feasible to use a HELOC instead of a refi?

No. I've never seen HELOC terms that would work for anything other than what I've described above.

Originally posted by @Alexander Felice :
Originally posted by @Joe Villeneuve:
Originally posted by @Andrey Y.:
Originally posted by @Joe Villeneuve:

What are the terms and qualifications for each? The impact financially from either the HELOC or a REFI will make your decision for you in most cases.

In my case, I use both.

The cash out refi would be approx. 4.375% fixed 30 year loan. The HELOC would be around the 5.0% range. One thing I am sort of confused on, if I ended up getting a heloc and used most of the funds right away, what would happen? It looks like I would have to come up with the funds quickly as opposed to a cash-out refi where it would just be a slow and steady payback.

What are the payback terms for the HELOC?

The heloc payback terms are more than likely going to make the cash refi a better deal. My bank has HELOC payments at 1.5% of the amount advanced. Meaning cashflow goes to crap.

as JD said, use the heloc to buy the property, then refi the cash out with a 30 year fixed.

@Joe, I promise I'm really not following you around just to agree with you....


When you say 1.5%, do you mean 1.5% of the funds you use from the heloc, need to be payed every month? (Sorry for the simpleton question)

Originally posted by @Andrey Y. :
Originally posted by @Alexander Felice:
Originally posted by @Joe Villeneuve:
Originally posted by @Andrey Y.:
Originally posted by @Joe Villeneuve:

What are the terms and qualifications for each? The impact financially from either the HELOC or a REFI will make your decision for you in most cases.

In my case, I use both.

The cash out refi would be approx. 4.375% fixed 30 year loan. The HELOC would be around the 5.0% range. One thing I am sort of confused on, if I ended up getting a heloc and used most of the funds right away, what would happen? It looks like I would have to come up with the funds quickly as opposed to a cash-out refi where it would just be a slow and steady payback.

What are the payback terms for the HELOC?

The heloc payback terms are more than likely going to make the cash refi a better deal. My bank has HELOC payments at 1.5% of the amount advanced. Meaning cashflow goes to crap.

as JD said, use the heloc to buy the property, then refi the cash out with a 30 year fixed.

@Joe, I promise I'm really not following you around just to agree with you....


When you say 1.5%, do you mean 1.5% of the funds you use from the heloc, need to be payed every month? (Sorry for the simpleton question)

 It doesn't matter.  Like I said above, I've never seen a HELO that can be carried for any other purpose other than what I described above.

Comparison:

HELOC                Items               REFI

60,000                Loan              60,000
1.5%/m                 Int                5.1/amort 30 yrs
900/m                Pmt/m           326/m

....hello?

Originally posted by @Andrey Y. :
Originally posted by @George Allen:

Heloc you can pay it up and down and reuse it very cheap to close.  Cash out is high closing costs.  You can't pay it up and down and reuse it.  Appraisal is cheaper on a heloc also.  It's like a huge cc.  Now your rates are fixed on a cash out which is really better from that standpoint.  However if you are rinsing and repeating.  Flipping,  heloc is ideal.  

What if I want to hold the properties I buy with the heloc funds (at least for 3 years). With that said, is it even feasible to use a HELOC instead of a refi?

Thats a good question lol.  A lot of determining variables.  You have to expand the information on what your doing to get a better idea.  Helocs are really fast 2 weeks I guess. Better get it from a bank or credit union.  For 3 years you might want to stick with cash out fixed rate.  Who knows rates have to go up and that's something that will stay in place and your heloc will go up certainly.  I guess your using this for DP and not rehab you didn't expand a lot on that. Also you said distance what does that mean?

Originally posted by @Andrey Y. :
Originally posted by @Alexander Felice:
Originally posted by @Joe Villeneuve:
Originally posted by @Andrey Y.:
Originally posted by @Joe Villeneuve:

What are the terms and qualifications for each? The impact financially from either the HELOC or a REFI will make your decision for you in most cases.

In my case, I use both.

The cash out refi would be approx. 4.375% fixed 30 year loan. The HELOC would be around the 5.0% range. One thing I am sort of confused on, if I ended up getting a heloc and used most of the funds right away, what would happen? It looks like I would have to come up with the funds quickly as opposed to a cash-out refi where it would just be a slow and steady payback.

What are the payback terms for the HELOC?

The heloc payback terms are more than likely going to make the cash refi a better deal. My bank has HELOC payments at 1.5% of the amount advanced. Meaning cashflow goes to crap.

as JD said, use the heloc to buy the property, then refi the cash out with a 30 year fixed.

@Joe, I promise I'm really not following you around just to agree with you....


When you say 1.5%, do you mean 1.5% of the funds you use from the heloc, need to be payed every month? (Sorry for the simpleton question)

 yes. your payment would be 1.5% of the outstanding balance. So it'll change each month. It's almost always too high to keep the funds holding the property and still cashflow. It's good to use for purchases, but not for holding.

Again, that's the heloc terms my bank offers, YMMV

Great discussion but I think there is one thing you are leaving out and that is the Time Value of Money.  Interest rates now are still very low and if you have the ability to REFI and lock the use of that money in at 4.375% for 30 years…wow that's a great use for that money.  

I do agree with the arguments for using a HELOC and I was just debating this very same thing for myself about 6 months ago. I finally decided on the REFI and am glad I did.

Would love to know what you decide.