Need to pull out equity to fund the next deal

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Need to pull out equity to fund the next deal

Olu Efunwoye
Rental Property Investor · Springdale, MD · Member since 2018 · 65 posts · 24 votes

I owe a mortgage bal of $126k on a property worth $375k and have about 8 years to pay it off; rate is 3.37%.

I need to tap that equity to purchase other properties. The options I'm considering are:

  1. 1. HELOC at 75% LTV will give me access to $155k, but the rate is around 8-10% and is subject to going higher, considering the current instability with inflation. Pro: I will have access to the fund. Con: The rate on HELOC is more than double the first mortgage, and I worry about the rising rate.
  2. 2. Home equity loan: pretty much the same as #1 but not a revolving credit.
  3. 3. Cash-out refi at 75% LTV. The rate could be around 6.75 - 7.5% or so. I will be giving up my low-rate first mortgage.
  4. 4. Outright sale: my least favorite option. I know I could do 1031 into the next deal, but what if I could keep the property and still take out the cash?

My credit score is 755+, so that wouldn't be an issue with financing. I am getting my ducks in a row to finance my next deal, which has to be a commercial RE (multi-family of 5+ and above). Which option would you do? I am also open to other options outside of the ones listed above.

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Caleb Brown
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
2y

I would either do HELOC or sell. If you do sell, would you house hack or do something else? I do like how low your interest rate is so using as a revolving credit wouldn't be bad. Do a deal then pay it down, rinse and repeat

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  • Caleb Brown
    Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
    2y

    I would either do HELOC or sell. If you do sell, would you house hack or do something else? I do like how low your interest rate is so using as a revolving credit wouldn't be bad. Do a deal then pay it down, rinse and repeat

    1Reply
  • Brandon Croucier
    Lender · Nashville, TN · Member since 2024 · 700 posts · 284 votes
    2y

    Would probably just do a cash out refinance, some are saying rates to head towards the double digits soon. I would love to connect and see what we can do for you!

    0Reply
  • Olu Efunwoye
    OP
    Rental Property Investor · Springdale, MD · Member since 2018 · 65 posts · 24 votes
    2y
    Quote from @Caleb Brown:

    I would either do HELOC or sell. If you do sell, would you house hack or do something else? I do like how low your interest rate is so using as a revolving credit wouldn't be bad. Do a deal then pay it down, rinse and repeat

    This is an investment property apart from my primary residence. 
    0Reply
  • Olu Efunwoye
    OP
    Rental Property Investor · Springdale, MD · Member since 2018 · 65 posts · 24 votes
    2y
    Quote from @Brandon Croucier:

    Would probably just do a cash out refinance, some are saying rates to head towards the double digits soon. I would love to connect and see what we can do for you!

    Yes open to connect on this
    0Reply
  • Jason Park
    Lender · 5760 Northampton Blvd Ste 108 Virginia Beach, VA 23455 · Member since 2024 · 37 posts · 17 votes
    2y
    Quote from @Olu Efunwoye:

    I owe a mortgage bal of $126k on a property worth $375k and have about 8 years to pay it off; rate is 3.37%.

    I need to tap that equity to purchase other properties. The options I'm considering are:

    1. 1. HELOC at 75% LTV will give me access to $155k, but the rate is around 8-10% and is subject to going higher, considering the current instability with inflation. Pro: I will have access to the fund. Con: The rate on HELOC is more than double the first mortgage, and I worry about the rising rate.
    2. 2. Home equity loan: pretty much the same as #1 but not a revolving credit.
    3. 3. Cash-out refi at 75% LTV. The rate could be around 6.75 - 7.5% or so. I will be giving up my low-rate first mortgage.
    4. 4. Outright sale: my least favorite option. I know I could do 1031 into the next deal, but what if I could keep the property and still take out the cash?

    My credit score is 755+, so that wouldn't be an issue with financing. I am getting my ducks in a row to finance my next deal, which has to be a commercial RE (multi-family of 5+ and above). Which option would you do? I am also open to other options outside of the ones listed above.


     Hey Olu,

    As a long term holder in the DMV area, I would lean towards cashing out to a % of comfortable cashflow and moving on to expanding your portfolio. We an help you take some equity out and refinance the loan.

    LMK if you need anything else!

    1Reply
  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    2y

    I'd do whatever the math says works best, and don't fall for the low rate 1st fallacy. Blended rate will help answer the math behind which option is best.

    1Reply
  • Brittany MinocchiBusiness Member
    Lender · Massillon, OH · Member since 2022 · 1k+ posts · 486 votes
    2y

    Hey Olu - 

    If you're concerned about the variable rate with a HELOC, I would suggest either a cash out refi or a HELOAN. A HELOAN will have a significantly higher rate than a cash out refi, but you'll need to look at your blended rate to see which option makes the most sense. If the blended rate ends up higher than what a cash out refi would get you, then I'd go with the cash out refi.

    [email protected]330-354-6590
    Brittany Minocchi - Barrett Financial Group, LLC522 Reviews
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    1Reply
  • Alex Hunt
    Lender · Member since 2022 · 441 posts · 134 votes
    2y

    I would weigh the new monthly payment of: a HELOC or 2nd position home equity loan. Against a cashout refi and see what those are like. Take the lower of the 2 if it gets you the funds needed for the next deal.
    Happy to connect on the refinance and the next purchase! 

    0Reply
  • Cassidy BurnsBusiness Member
    Investor · Alexandria, VA · Member since 2016 · 859 posts · 460 votes
    2y

    The very important question, is the property a property that you want to own for the foreseeable future? If the answer is yes, I would suggest the HELOC.

    If the answer is NO, then sell and execute a 1031 exchange into the next asset. 

    Good luck! 

    [email protected]540-960-1507
    0Reply
  • Olu Efunwoye
    OP
    Rental Property Investor · Springdale, MD · Member since 2018 · 65 posts · 24 votes
    2y
    Quote from @Cassidy Burns:

    The very important question, is the property a property that you want to own for the foreseeable future? If the answer is yes, I would suggest the HELOC.

    If the answer is NO, then sell and execute a 1031 exchange into the next asset. 

    Good luck! 

    I have held it for almost 14 years and I would like to hold it for the foreseeable future.
    0Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    2y

    HELOC is the best option 90% of the time. The rate relative to your mortgage rate is irrelevant. HELOC rates go up AND down. The benefits far outweigh what you get with a HEL.

    0Reply
  • Bryan Sopha
    Member since 2020 · 6 posts · 0 votes
    2y

    Hello Corby, 

    When you say the HELOC benefits far outweigh HEL are you speaking of the HE agreement? If so what ways does it far outweigh it? With the equity agreement nothing changes to the rates of the current mortgage and it's much easier to get approved. But obviously the main downside is giving up equity that would benefit your future wealth.

    0Reply
  • Mike Manchester
    Member since 2024 · 5 posts · 0 votes
    2y

    I would do a cash-out refi with zero or low PPP. Yes you are giving up a rate that you probably aren't going to see again anytime soon, but as long as you aren't locked into an extensive penalty period you can always refi again if rates plummet to the point that it makes sense to do so. 

    0Reply
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