Cash-out Refi or Line of Credit

Real Estate Broker · Charlotte, NC · Member since 2024 · 22 posts · 7 votes

Hi everyone!

I have a quick question and would love to hear your thoughts. If you have a couple of rental properties with some equity, and you're looking to tap into that equity to fund more investments, what would you do? The current loans on the properties are with a bank that offers a flexible rate, which has recently increased. Would you consider doing a cash-out refinance into a 30-year DSCR loan, or would you opt for a line of credit instead?

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Elias HalvorsonBusiness Member

HI · Member since 2024 · 225 posts · 130 votes

Quote from @Kevin Akers:

Hi everyone!

Hi Kevin,

I would look into both. Local banks/credit unions typically offer the best HELOC rates, but few of them offer investment HELOCs. A DSCR Cashout refi would get you the cash you want but you will pay points, have a 1-5 year pre-payment penalty, etc.

808-517-6416

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Jaycee GreenePro Member
Real Estate Consultant · St. Louis MSA · Member since 2024 · 3k+ posts · 727 votes
1y
Hey @Kevin Akers! I'm curious why your bank rate recently increased? Did you have an ARM that adjusted? The decision about the cash out refi all depends on the different terms from the lenders. Have you gotten any term sheets or commitments about this yet?
What would help the community is for you to share as much info as you are comfortable, but the appraised values, current loan balances, and the current rents would be a good start.
[email protected]
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Devin PetersonBusiness Member
Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 667 votes
1y
Quote from @Kevin Akers:

Hi everyone!

I have a quick question and would love to hear your thoughts. If you have a couple of rental properties with some equity, and you're looking to tap into that equity to fund more investments, what would you do? The current loans on the properties are with a bank that offers a flexible rate, which has recently increased. Would you consider doing a cash-out refinance into a 30-year DSCR loan, or would you opt for a line of credit instead?

Answer here lies in the math. Use a blended rate calculator to see what is more cost efficient. Most banks won't allow for a DSCR underwrite for HELOCs. Which means, if you've structured your taxes as losses for the last two years odds of qualifying are slim. The cadence over the past couple years has really been DSCR for investor growth. Happy to connect and help answer any questions. Good luck!
[email protected]860-538-3672
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Elias HalvorsonBusiness Member
HI · Member since 2024 · 225 posts · 130 votes
1y
Quote from @Kevin Akers:

Hi everyone!

I have a quick question and would love to hear your thoughts. If you have a couple of rental properties with some equity, and you're looking to tap into that equity to fund more investments, what would you do? The current loans on the properties are with a bank that offers a flexible rate, which has recently increased. Would you consider doing a cash-out refinance into a 30-year DSCR loan, or would you opt for a line of credit instead?

Hi Kevin,
I would look into both. Local banks/credit unions typically offer the best HELOC rates, but few of them offer investment HELOCs. A DSCR Cashout refi would get you the cash you want but you will pay points, have a 1-5 year pre-payment penalty, etc.
808-517-6416
Elias Halvorson C2 Hawaii NMLS#1697041HI Branch NMLS#1244222 585 Reviews
Website View Page
1 Reply
Brittany MinocchiBusiness Member
Lender · Massillon, OH · Member since 2022 · 1k+ posts · 486 votes
1y
Can you qualify full doc (meaning with employment history, income, DTI, tax returns)? If so, I'd look into that before a DSCR loan to avoid the prepayment penalty DSCRs carry. If you can't qualify, DSCRs are a good option but I normally advise to stick with a 3-year prepay (or less, depending on pricing). Closing in an LLC is also allowed with DSCRs if that's a concern. If you have an immediate need for a large sum of cash, I'd lean cash out. If not, then I'd explore a line of credit, but that will also be a full doc qualification and you'd still have that variable interest rate. Happy to chat if you think of any other questions!
[email protected]330-354-6590
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Kevin Akers
OP
Real Estate Broker · Charlotte, NC · Member since 2024 · 22 posts · 7 votes
1y
Quote from @Jaycee Greene:

Hey @Kevin Akers! I'm curious why your bank rate recently increased? Did you have an ARM that adjusted? The decision about the cash out refi all depends on the different terms from the lenders. Have you gotten any term sheets or commitments about this yet?
What would help the community is for you to share as much info as you are comfortable, but the appraised values, current loan balances, and the current rents would be a good start.

Jaycee! Thank you for your input.
Property 1
Laon balance 51K, appraised for 127K, rent $1095
Property 2
Loan balance 55k, appraised 126K, rent $1195
0 Reply
Kevin Akers
OP
Real Estate Broker · Charlotte, NC · Member since 2024 · 22 posts · 7 votes
1y
Quote from @Devin Peterson:

Quote from @Kevin Akers:

Hi everyone!

I have a quick question and would love to hear your thoughts. If you have a couple of rental properties with some equity, and you're looking to tap into that equity to fund more investments, what would you do? The current loans on the properties are with a bank that offers a flexible rate, which has recently increased. Would you consider doing a cash-out refinance into a 30-year DSCR loan, or would you opt for a line of credit instead?

Answer here lies in the math. Use a blended rate calculator to see what is more cost efficient. Most banks won't allow for a DSCR underwrite for HELOCs. Which means, if you've structured your taxes as losses for the last two years odds of qualifying are slim. The cadence over the past couple years has really been DSCR for investor growth. Happy to connect and help answer any questions. Good luck!

Hey Devin!
Thank you so much for your input. I might reach out to you to get more information
0 Reply
Kevin Akers
OP
Real Estate Broker · Charlotte, NC · Member since 2024 · 22 posts · 7 votes
1y
Quote from @Elias Halvorson:

Quote from @Kevin Akers:

Hi everyone!

I have a quick question and would love to hear your thoughts. If you have a couple of rental properties with some equity, and you're looking to tap into that equity to fund more investments, what would you do? The current loans on the properties are with a bank that offers a flexible rate, which has recently increased. Would you consider doing a cash-out refinance into a 30-year DSCR loan, or would you opt for a line of credit instead?

Hi Kevin,
I would look into both. Local banks/credit unions typically offer the best HELOC rates, but few of them offer investment HELOCs. A DSCR Cashout refi would get you the cash you want but you will pay points, have a 1-5 year pre-payment penalty, etc.

Hi Elias!
Great points! I am working with a local bank that offers investment HELOCs.
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Kevin Akers
OP
Real Estate Broker · Charlotte, NC · Member since 2024 · 22 posts · 7 votes
1y
Quote from @Brittany Minocchi:

Can you qualify full doc (meaning with employment history, income, DTI, tax returns)? If so, I'd look into that before a DSCR loan to avoid the prepayment penalty DSCRs carry. If you can't qualify, DSCRs are a good option but I normally advise to stick with a 3-year prepay (or less, depending on pricing). Closing in an LLC is also allowed with DSCRs if that's a concern. If you have an immediate need for a large sum of cash, I'd lean cash out. If not, then I'd explore a line of credit, but that will also be a full doc qualification and you'd still have that variable interest rate. Happy to chat if you think of any other questions!

Hi Brittany!
I have already been fully qualified for both the line of credit and DSCR. The only reason I want to do a cashout refi is to get rid of my current high interest rate.
0 Reply
Brittany MinocchiBusiness Member
Lender · Massillon, OH · Member since 2022 · 1k+ posts · 486 votes
1y
Quote from @Kevin Akers:

Quote from @Brittany Minocchi:

Can you qualify full doc (meaning with employment history, income, DTI, tax returns)? If so, I'd look into that before a DSCR loan to avoid the prepayment penalty DSCRs carry. If you can't qualify, DSCRs are a good option but I normally advise to stick with a 3-year prepay (or less, depending on pricing). Closing in an LLC is also allowed with DSCRs if that's a concern. If you have an immediate need for a large sum of cash, I'd lean cash out. If not, then I'd explore a line of credit, but that will also be a full doc qualification and you'd still have that variable interest rate. Happy to chat if you think of any other questions!

Hi Brittany!
I have already been fully qualified for both the line of credit and DSCR. The only reason I want to do a cashout refi is to get rid of my current high interest rate.
What is your rate currently? And you said it’s an ARM?
[email protected]330-354-6590
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Jaycee GreenePro Member
Real Estate Consultant · St. Louis MSA · Member since 2024 · 3k+ posts · 727 votes
1y
Quote from @Kevin Akers:

Quote from @Jaycee Greene:

Hey @Kevin Akers! I'm curious why your bank rate recently increased? Did you have an ARM that adjusted? The decision about the cash out refi all depends on the different terms from the lenders. Have you gotten any term sheets or commitments about this yet?
What would help the community is for you to share as much info as you are comfortable, but the appraised values, current loan balances, and the current rents would be a good start.

Jaycee! Thank you for your input.
Property 1
Laon balance 51K, appraised for 127K, rent $1095
Property 2
Loan balance 55k, appraised 126K, rent $1195

Are these 1BR or 2BR?
[email protected]
0 Reply
Kevin Akers
OP
Real Estate Broker · Charlotte, NC · Member since 2024 · 22 posts · 7 votes
1y
Quote from @Brittany Minocchi:

Quote from @Kevin Akers:

Quote from @Brittany Minocchi:

Can you qualify full doc (meaning with employment history, income, DTI, tax returns)? If so, I'd look into that before a DSCR loan to avoid the prepayment penalty DSCRs carry. If you can't qualify, DSCRs are a good option but I normally advise to stick with a 3-year prepay (or less, depending on pricing). Closing in an LLC is also allowed with DSCRs if that's a concern. If you have an immediate need for a large sum of cash, I'd lean cash out. If not, then I'd explore a line of credit, but that will also be a full doc qualification and you'd still have that variable interest rate. Happy to chat if you think of any other questions!

Hi Brittany!
I have already been fully qualified for both the line of credit and DSCR. The only reason I want to do a cashout refi is to get rid of my current high interest rate.
What is your rate currently? And you said it’s an ARM?

Sorry for the late reply. One property is 9.5% and one is 7.25%. I am refinancing the 9.5% for sure and am in the process now.
0 Reply
Kevin Akers
OP
Real Estate Broker · Charlotte, NC · Member since 2024 · 22 posts · 7 votes
1y
Quote from @Jaycee Greene:

Quote from @Kevin Akers:

Quote from @Jaycee Greene:

Hey @Kevin Akers! I'm curious why your bank rate recently increased? Did you have an ARM that adjusted? The decision about the cash out refi all depends on the different terms from the lenders. Have you gotten any term sheets or commitments about this yet?
What would help the community is for you to share as much info as you are comfortable, but the appraised values, current loan balances, and the current rents would be a good start.

Jaycee! Thank you for your input.
Property 1
Laon balance 51K, appraised for 127K, rent $1095
Property 2
Loan balance 55k, appraised 126K, rent $1195

Are these 1BR or 2BR?

The are 3 bedrooms
0 Reply
Jaycee GreenePro Member
Real Estate Consultant · St. Louis MSA · Member since 2024 · 3k+ posts · 727 votes
1y
Quote from @Kevin Akers:

Quote from @Jaycee Greene:

Quote from @Kevin Akers:

Quote from @Jaycee Greene:

Hey @Kevin Akers! I'm curious why your bank rate recently increased? Did you have an ARM that adjusted? The decision about the cash out refi all depends on the different terms from the lenders. Have you gotten any term sheets or commitments about this yet?
What would help the community is for you to share as much info as you are comfortable, but the appraised values, current loan balances, and the current rents would be a good start.

Jaycee! Thank you for your input.
Property 1
Laon balance 51K, appraised for 127K, rent $1095
Property 2
Loan balance 55k, appraised 126K, rent $1195

Are these 1BR or 2BR?

The are 3 bedrooms

Assuming these are in Charlotte, the rents seem very low for 3BR units. The average FMR in Charlotte is around $2,150. Even without that, you should have no issues qualifying for a DSCR loan with a local bank. Unless you plan to sell one of these in the next 5 years, you'll probably get a better deal if you try to refi both of them at the same time. Just my 2 cents.
[email protected]
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Trevor Finn
Real Estate Consultant · Columbia, MD · Member since 2017 · 160 posts · 55 votes
1y
@Kevin Akers,
You’re in a great position to leverage your equity! Here’s how I’d approach it:
- For the 9.5% Loan: Refinancing into a DSCR loan makes sense to lock in a lower fixed rate, especially if your goal is stability and better cash flow.
- For the 7.25% Loan: If the local bank's investment HELOC offers a competitive rate, consider it for flexibility. HELOCs let you access equity as needed, keeping costs low unless you use the funds.
Key considerations: If you plan to scale quickly, the HELOC might provide the liquidity you need for faster moves. However, if locking in lower rates and simplifying payments are prioritized, DSCR refinancing on both properties could be a better long-term play.

What’s your next investment strategy—another rental or a flip? Your answer could guide whether flexibility or fixed rates are the way to go!
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Jay S.Pro Member
Lender · San Francisco Bay Area · Member since 2019 · 52 posts · 46 votes
1y
Hey Kevin, I would say It depends on multiple factors.
1) how you want to take care of debt once you get cash out vs HELOC?
2) Some folks prefer to only pay interest for the money they use - which is HELOC here. Vs in cash out; your payment will be fixed.
3) LTVs => HELOC LTV for Rentals go up to 70% usually. DSCR Cash out Refi can go up to 75%.
4) 1st Lien as Cash out Refi or 2nd Lien as HELOC? Some folks do not want to touch 1st Liens if it is low rate.
[email protected]408-832-8200
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