Cash out refi or HELOC to use for an investment property?

[Jonathan Flores]

What strategy do you prefer to use to tap into your homes equity to use towards a purchase on an investment property? And why?

[Jody Sperling]

Originally posted by @Jimmy Lieu:

Originally posted by @Jody Sperling:

When possible, and applicable, the first position HELOC is the most powerful financial weapon in the investor's arsenal. It's cheaper than any refinance and can be used over and over again.

Investors who spend more than they make CANNOT use a first position HELOC: period. The interest will get away from them and they'll lose their home.

All other investors will be able to quickly, efficiently pay down the HELOC, use only what they need, and have a constant supply of cash on hand to offer and purchase properties. Only the first position HELOC gives an investor the chance to snowball rents and a growing portfolio as aggressively.

And it is a debt tool, so it must be used with tremendous caution.

 Hi,

I am learning more about HELOCs myself. If I have a 200k property with 100k mortgage left, and I can get a 90% LTV, that means I can qualify for 180k for the HELOC. However, because of the 100k mortgage, I would only get 80k for the HELOC.

Just making sure I am understanding but 100k is the first position and 80k is the second position correct? And in this case, how would I be able to use a first position? I thought I would only be able to get 80k for the HELOC because we have to subtract the 100k mortgage out?

Is what I am saying correct at all?

@Jimmy Lieu, a HELOC in second position would be up to 80k, yes, but if you ask around, you can find a local bank who will give first-position HELOCs. With a first-position HELOC you get up to 90% on the appraised value of the property, the bank buys the remainder of your mortgage and you get title to the house. Then interest starts accruing on the balance in the HELOC.

I used a first-position HELOC on my rental property (the terms are slightly more conservative for investment properties, but they still lend at 75% appraised value).

You only want a first-position HELOC if you live below your means. If you spend more than you make, it's a very dangerous financial position. But if you save more than you spend, you turn around and dump all your earnings into the HELOC, and pay all of your bills out of the HELOC each month.

By simple math, most people who live below their means pay off mortgages in five to seven years using this strategy. That's not even to mention you have the available credit if a great investment option comes up. Look online for Velocity Banking if you want more info. I like the Kwak Brothers all right, but if you can make time, watch WiseGuysInTies velocity banking video. It's long, but the most thorough online. Best of luck!