Cash out Refi or HELOC??

Question

I am partnering on a flip and wanted to make sure I had enough access to cash / credit if needed. Currently have $40K cash as well as have a rental property that has about $90K in equity that I could tap into. I have budgeted $45K for the flip and am wondering if taking out a HELOC on my rental property would be "smarter" than a cash out refi, using the funds for additional flips and or rental properties.

Nik Corbaxhi · Answer

In your scenario, seems like you are 5k short for the flip.

1. Refinancing means that you would have to pay back the interest on the amount over a fixed period of time (unless you decide to pay it off early). HALOC has no penalties if you do not use the money and would only pay interest on what you are using. Look at the interest rates for both and see what makes more sense for you.

2. think a bit longer term. Is the goal for you to continue investing once this is done? Will you need additional money in the near future do do the same? which of the 2 scenarios gives you the most flexibility to get the money in your fingertips?

Personally, I like the HALOC because if you are not using the money, you dont get charged for it, but it is there in case you need it. Most banks allow you to close the account after 2 years with no penalty. Refinancing is more streamlined and you have to pay back the interest regardless.

I hope this helps and good luck.

Will Fraser · Answer

In general I’d say that if you can refinance onto a long-term fixed rate loan (like the primary mortgage market with a conventional loan) then go that route, but if the loan will be variable go with a HELOC.