Looking to purchase my first duplex. I want to do HELOC with my house to purchase the rental. Then refinance in a year to pay the loan off. My mortgage company and my mortgage broker said it would be better to do a cash out refinance. Is anyone familiar with this? Would it still work to refinance down the road and be able to purchase another property? Either way I'm trying to purchase as many properties as possible, just not sure what the right decision is. Any input helps thanks.
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
5y
@Matthew Franklin
I did a cash out refi on my primary 3 years ago to pull 100k out to play with. I bought 3 SFHs with 20% down on each. They were worth a combined 350k when I bought them. They are worth 550k now. I have no regrets at all. I basically doubled my 100k I took out in less than 4 years. And have 3 good cash flowing properties. The interest rate on my primary is only 2.125% and my 3 rentals are at 2.75%. I’m all about borrowing cheap money! Good luck!
That doesn't entirely make sense.... You don't really hold the property in "cash." you still borrowed money, its just that the loan is on another one of your properties. That is just accounting/paper "gimmick" to say you are cash flowing really well on one property in my opinion.
Investor · Raleigh, NC · Member since 2019 · 433 posts · 743 votes
5y
@David M. If you're not utilizing the credit line, meaning none is drawn down, then yes you are holding it outright. You wouldn't owe anything on it unless you draw money down.
Where people get in trouble in HELOCs is when they use the HELOC to pay for liabilities (boats, cars, bills, etc). If you're using it to just buy additional property using a BRRRR method, then you would draw down the credit line and pay it back fairly quickly and get yourself back to strong cash flow again.
New to Real Estate · Member since 2020 · 13 posts · 10 votes
5y
@Matthew Franklin I tend to go with the HELOC . It just seems more flexible and you're not paying for money that's just sitting in the bank, If you don't have an immediate deal for it. My only exception would be if you can get more out of a cash out refi than you could a HELOC and you needed the capital for a deal.