What to do first? Heloc or Cash out Refi

2 Replies

I'll start out by saying my DTI is high due to student loans primarily. I want to buy two more properties next year. My first rental is owned free and clear (property is valued around 40k), it is owned in an LLC I created with my wife. I also have about 30k in equity in my primary residence and want to do a heloc. I want both loans so I keep this real estate train moving. Does the order I apply for these matter? I have a commercial portfolio lender ready to go with lending some money on my rental property. Should I do a cash out refinance on the investment property owned in my LLC first (will this negatively hurt my personal dti and blow my chances at a heloc?)? Or, should I get a heloc first on my primary residence and hope the commercial lender will still lend to me? If I just get the heloc first, but dont spend the money, will this be factored? Any advice is welcomed and appreciated.

@Jonathan Roper , my instinct tells me that you should go with the cash-out refi against your rental. [However, I'm surprised to read that they would lend out such a "small" amount. Are you sure you've given them the full details?] 

My theory is that your DTI should not be affected adversely, providing that (say) 75% of the new investments' income will 100% cover your RE-financed investment loan (and, they reckon that they've only lent you 75% or less of its value anyway), right? [Ask them their formula]. Isn't that how you keep your portfolio Lender happy to keep that train going?

As far as your primary is concerned, I suspect that $30k might not be enough equity to offer you (much of) a HELOC against it? And even if they do, I reckon that will affect your DTI more negatively, for the simple reason that they must assume that you'll "waste" it! My 2c...

@Brent Coombs I think that is good advice. I am also kind of hopeful since it is in an LLC that it won't be reported on my personal credit report unless I default. The lender I am working with works for a small community bank and he says they have no minimum. He said they want to grow with their customers. We'll see though, he hasn't written me a check yet. :)

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here