Equity to finance

Rental Property Investor · Lubbock, TX · Member since 2020 · 7 posts · 2 votes

I'm going to do my first rehab this year and I plan on financing with a HELOC, but the property I'm using is almost paid off with a great interest rate. Should I pay it off first?

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Gregory AcsPro Member
Lender · MD · Member since 2025 · 133 posts · 51 votes
11h
Whether it makes sense to pay the property off first really depends on the numbers. If you already have a great interest rate, I'd be cautious about giving that up just to access equity. In many cases, keeping a low-rate mortgage and using a HELOC for the rehab can provide more flexibility, but it's important to compare the total borrowing costs, monthly payments, and how the project is expected to perform. HELOCs typically have variable rates, so that's another factor to consider.
Before making a decision, I'd run both scenarios side by side and see which one leaves you in the strongest position from a cash flow and financing perspective. If you'd like to compare the options or walk through the numbers for your rehab, I'd be happy to help.
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Stacy RaskinBusiness Member
Lender · Member since 2022 · 1k+ posts · 494 votes
10h
Generally HELOCs are going to be higher rates than a first position conventional mortgage. It's important to see the total cost of borrowing the money along with how long you will most likely hold the borrowed money for as well as your expected return on investment before deciding on additional debt. Often investors will get DSCR loans if a non owner occupied rental property. DSCR loans are fixed first position mortgages that have less paperwork and don't use investor personal income or debt to income (DTI) ratios to structure the loan. They use the actual or projected property rents. It's also important to be conservative in your analysis if doing a rehab as many investors are seeing flips sit on the market for longer depending on the area. For BRRRRs, the math can work depending on the property's numbers. Happy to connect to discuss further.
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G. Brian DavisPro Member
Investor · Hatboro, PA · Member since 2016 · 2k+ posts · 842 votes
2h
Hi @Jaye Crockett , I wouldn't pay off a low rate loan just to free up equity for a rehab. That trades a cheap, fixed cost of capital for a variable rate HELOC, and on your first deal you want flexibility more than a paid off asset. I'd run the numbers on interest carry against your expected rehab budget and timeline, and keep the paid off property as a reserve you can tap again on the next deal. Preserving that low rate is worth more long term than the psychological win of an owned free and clear house.
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