Need help on Cash Out or Heloc for BRRRR Scenario

[Jimmy Nguyen]

Hi All, 

Would love some advice!

My Scenario:

I have 3 properties total

1st house - I have a mortgage on about 50k and I have a HELOC on it that I haven't used

2nd house - house is paid off and I own free and clear, it is worth $120k

3rd house - I just bought this house on a HELOC. For this new property, I still have to pay renovation costs. I bought the house for 55k, renovation should be 40k and AVR I would think is around 120k

I have 2 options for BRRRR:

1) Should I take out cash, put a mortgage on house #2 and pay off the money I borrowed from the HELOC that I bought the house with along with renovation costs, the total should be under 100k. The interest rate on this property would be 5.25% and $4k in closing costs. I can put it on a 15 year or 30 year loan but I'd try to pay it off in 7.5 - 8 years.

2) Should I just pay the HELOC and renovation costs which will prob also go on a HELOC with the rent money when I rent it out? The HELOC rate right now is 4.75% but it would take me 7.5-8 years to pay off using the rent money I get.

Dilemma is that 

1) If I take out cash and put the house on a mortgage, I'd be paying a higher interest % than my HELOC and would have to pay close to $4k in total closing but I'd be able to write off interest on my taxes. 

2) If I don't open a mortgage, I'd be paying the HELOC on my rental money for 7.5-8 years in which the HELOC rate can increase and I might be tied up with no funds to expand. Also, I won't be able to write off interest.

What would you do!? Any advice would be much appreciated!
 

Thanks,

Jimmy

[Michael Baldinger]

I used a HELOC to pay off some of my higher interest student loans. Loans were at 5.5% and the HELOC was at 2.9%. This was 1.5 to 2 years ago and now the HELOC has risen to 5%! Paying it off completely as quickly as possible since it is getting close to the original student loan interest rate. This was in a relatively short time period too, so I agree there is significant risk if your looking 7 to 8 years out. I think I would lean towards the fixed rate mortgage myself.