Should I sell or refinance and pull money out?

Question

Hello,

My goal is to purchase rental properties; my primary residence has about 200,000 dollars worth of equity and I love the house and its location. Should I sell my house, or take the equity out of the house to purchase rental properties?

Michinori Kaneko · Answer

James, the price will def drop at once point because the market is always a cycle. having said that you can always open a HELOC. that ways you can take out money (even when the valuation comes down you have that line) and buy properties while the prices are low, instead of selling the property now and holding onto the cash (and making no returns on it).  By keeping it, opening a HELOC, and renting it, you secure cash available for you at the next market down turn, while making return on your property from rent.  Hope that helps!

Adrian Stamer · Answer

If you love your house I would keep your house not sell it. Get a HELOC and use it to buy properties and then pay the line back down with the cash flow. This is how I personally run things

Mike Roy · Answer

@James Gardner I wouldn't say one is more common than the other.  They are two different tools, and each has it's place depending on the situation.  I think your first step might be to learn as much as you can about the mechanics of each and then determine what's appropriate.  Over the course of your investing career, you may end up employing both strategies.

Cory K Bente · Answer

@Mike Roy I originate helocs and I see a lot of people using them to make r.e. investments. Rate will be a little higher than a first mtg., but most are inexpensive to set up and offer flexible repayment terms.

James Gardner · Answer

Thanks for the feedback.

Julie O. · Answer

One thing to consider when deciding between a HELOC and refi is cost.  As mentioned above, it costs very little up front to set up a HELOC.  But getting a whole new mortgage to take cash out of a property costs thousands of dollars.  The HELOC will have a higher interest rate, and the tax laws on how you can spend HELOC money and still get a tax write-off have changed recently, a refi has a lower rate.  Just a few more things to think about.

Cory K Bente · Answer

@Michinori Kaneko makes a good point. Take advantage of current market condition. Access that capital while you can & jump on a deal when market cycles down.

Cory K Bente · Answer

well said @Mike Roy. I will add that your debt service will increase day one on a heloc too - at least in my experience. Lender's know there is a possibility for the borrower to draw/use the heloc. That said, they may run a calculation where a percentage (probably below 1%) of the overall available credit is added to debt service. @James Gardner "which is more common"? I don't know the statistics. I know people will weigh their options. e.g. What if you have a killer rate on your 1st mtg. You may not want to disrupt that great rate, so you consider a heloc. But then you need to weigh the LTV limits. Can you get more cash doing a cash out or can you get the same amount adding the heloc?

James Gardner · Answer

@Mike Roy

Which is more common for purchasing a second property?

Mike Roy · Answer

@James Gardner The benefit of a HELOC is that it acts essentially as a credit card against your house.  The money sits there and is available in an instant when you need it.  When you refit the money out, you're increasing your debt service from Day 1.

Should I sell or refinance and pull money out?

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