Cash Out Refinance Vs. Using Property as a Collateral?

4 Replies

Hello Everyone,

I have owned this rental property for a few years now and I want to use 50K of the equity as a down payment to buy another property. The lending bank said they can do this either by cash out refinance or using the property as a collateral. I have read few articles about the pros and cons of these 2 ways of using equity. If any of you have borrowed money against the equity of an existing property, can you please provide me some suggestions on the pros and cons.

Any suggestions are greatly appreciated.

Thanks

Lokesh

I'm confused by this

doing a cash out refi will use a property as collateral. 

Are you asking if you should cash out refi YOUR house versus doing a regular loan on the new property? If so, it's largely irrelevant as the terms/rates will be similar and the product is the same. They are both collateralize loans, if you cash out refi your house to buy the next, you'll want a cash out refi on that one soon anyway to get your money back out. 

paying cash for houses is idea, rather than loans, so if you can cash out your primary to buy the new house then do that, THEN do a cash out of the new property to free up funds for the 3rd house. Separating the buying and lending portions of the deal is really helpful 

im confused too, you want to leverage equity for cash .. people lending you a LOC like a business loan based on your house equity is likely not possible you will need a cashflowing stabilized business first.

@Lokesh W.

I am thinking you may be confusing different financing methods. 

A cash out refinance, is always a lien on a property - collateral as you said. You can take out up to 75% on an investment property SFR and up to 70% LTV on a MFR investment property. This cash that you pull out can be used as a down payment on another investment property purchase.

It is using the BRRR method - pulling out equity on one investment property to purchase another after increasing the value and making repairs, and then repeating the process.

I am glad to answer any questions on this type of financing. 

Thanks for your responses. I meant Cash-out refinance vs. Home equity line of credit (HELOC). I just copied the banker's email that said do you want cash out refinance or use the 5-unit property as a collateral. I am leaning towards cash out refinance. It looks like HELOC has disadvantages.