Cash out refi or HELOC?

Question

I have been trying to buy an investment property for several months now, unfortunately each time I place an offer, I am beat by an all cash offer.

I currently own a rental property that has appreciated about $500K since I purchased it back about 10 years ago. I don’t really want to sell it, as I am a buy and hold investor.

My question is, can I tap the equity in my rental property to pay all cash for another investment property?  Should I do a HELOC, or a Cash out refinance?

I haven’t done either of these before and would like your opinions on what the best way would be so I can start competing all cash and finally get my offer accepted? Thanks.

Charlie Massey · Answer

I would agree, the cashout refi is definitely a better option. That way you don't have to worry about paying back the heloc quickly or pay that higher interest.

super easy to do also, just shop around at your local banks.

Kerry Baird · Answer

Yes, you can do either of those. Cash out refi is best for long term. Get a lower rate, take cash out, leave some equity in. Make new offer or two. Screen tenants, collect rents, pay down both mortgages. Stabilize your portfolio.

Do it again.  Take funds and buy 4.  Stabilize...

Justin Phillips · Answer

It really depends on your plan both short and long term. Are you looking to buy in cash, then put a mortgage on it to pull your cash back out? If so, a Heloc would be your best option. If you're looking to purchase that in cash, and leave that cash tied up in the property long term, a cashout refi would be best. My goal is always to have as little trapped/lazy equity in possible. That being the case, I have a very specialized 1st position LOC tied to my property. It gives me stable 30 year access to equity, but I only pay for that access when I need it. It's tied to a zero balance sweep checking account, so all of my deposits and idle funds sit on my balance and save me interest cost. When a good investment comes up, I simply write a check from my credit line. That said, we all have different goals and long term priorities. Based on your goals, find the options that fits best and go for it!

Cash out refi or HELOC?

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