Using Home Equity For Investment - HELOC vs Cash Out Refi

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Using Home Equity For Investment - HELOC vs Cash Out Refi

Zebuel Early
Homeowner · Pinole, CA · Member since 2016 · 6 posts · 3 votes

I'm an investor living in The Bay Area looking to purchase my first out-of-state asset in Northwest Arkansas. Prices are just too high for me in my market. However, having just switched over from a Sole Proprieter to an S-CORP, I'm having trouble getting pre-approved for a conventional loan due to my income on paper. My wife and I have quite a bit of equity in our home w/ a current 30 year fixed mortgage at 3.375%. We're looking into different ways of utilizing that equity for an investment property. I'm thinking of taking out $200,000 so I can make a cash offer when I find a deal worth jumping on. My options are: 

1: a HELOC from a local credit union with an interest-only adjustable-rate payment for the first 10 years. The idea here would be to make the interest-only payments and eventually refi into a conventional loan. The payments would be about $625 per month on the interest which isn't deductable from what I understand, but it's a low monthly out-of-pocket fee.

2: a Fixed Rate Cash-Out Refi locked in at 4.25% with closing costs around $5k. I'd be jumping up a whole percentage point and paying more per month but I'd have cash to invest. Plus you can deduct interest on a fixed-rate mortgage whereas you can't on a HELOC.

*With all that's going on with interest rates and the war right now, what do you all think the best strategy is in using my home equity?  Do you think this is a smart move right now? Do any of you advise against it or do you have any other ideas or advice? Seems like a crazy time to invest but I don't want to just sit on the sidelines. 

Thanks so much!

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Dave Skow
Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
4y

using a HELOC would be the better move.....this will allow your 1st mtg to remain low and getting approved for a HELOC can be easier at times as compared to getting approved for a 1st mtg cash out refinance

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  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    4y

    using a HELOC would be the better move.....this will allow your 1st mtg to remain low and getting approved for a HELOC can be easier at times as compared to getting approved for a 1st mtg cash out refinance

    1Reply
  • Zebuel Early
    OP
    Homeowner · Pinole, CA · Member since 2016 · 6 posts · 3 votes
    4y

    Thanks Dave!

    1Reply
  • Kelly Reynolds
    New to Real Estate · CA · Member since 2019 · 32 posts · 15 votes
    4y
    Quote from @Zebuel Early:

    I'm an investor living in The Bay Area looking to purchase my first out-of-state asset in Northwest Arkansas. Prices are just too high for me in my market. However, having just switched over from a Sole Proprieter to an S-CORP, I'm having trouble getting pre-approved for a conventional loan due to my income on paper. My wife and I have quite a bit of equity in our home w/ a current 30 year fixed mortgage at 3.375%. We're looking into different ways of utilizing that equity for an investment property. I'm thinking of taking out $200,000 so I can make a cash offer when I find a deal worth jumping on. My options are: 

    1: a HELOC from a local credit union with an interest-only adjustable-rate payment for the first 10 years. The idea here would be to make the interest-only payments and eventually refi into a conventional loan. The payments would be about $625 per month on the interest which isn't deductable from what I understand, but it's a low monthly out-of-pocket fee.

    2: a Fixed Rate Cash-Out Refi locked in at 4.25% with closing costs around $5k. I'd be jumping up a whole percentage point and paying more per month but I'd have cash to invest. Plus you can deduct interest on a fixed-rate mortgage whereas you can't on a HELOC.

    *With all that's going on with interest rates and the war right now, what do you all think the best strategy is in using my home equity?  Do you think this is a smart move right now? Do any of you advise against it or do you have any other ideas or advice? Seems like a crazy time to invest but I don't want to just sit on the sidelines. 

    Thanks so much!

    Hi!  My husband and I are somewhat in the same position, except that we have already done a cash-out refi on our primary to purchase investment properties, and are now asking the question about whether to refinance some of our investment properties to pull cash out or use a HELOC.  I will say that using our primary residence's equity to purchase investment properties has really worked out well for us and I couldn't be happier that we decided to do it.  Good luck!

    0Reply
  • Kerry BairdPro Member
    Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
    4y

    For the long term, 30 year fixed money can't be beat.  HELOCs do adjust, many of them after 10 years, some of them adjust from the start.

    0Reply
  • Tuan Huynh
    North Hills, CA · Member since 2017 · 28 posts · 10 votes
    4y

    @Zebuel Early. I also live in California as well and I just finished my ADU project using my HELOC. This is my firsts rental and now looking to buy another out of state rental property. I am thinking of out doing a cash out refi to pay off the HELOC and get my house reappraised to pull out another HELOC to buy property. Essentially the heloc will add on to my primary 1st mortgage, which I am not in favor of because of the higher rate. I have a 2.2% now and my new rate will be close to 3.7%. I am wondering if there is another way around this? I am meeting US bank this weekend to discuss some options.

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    4y
    Quote from @Kelly Reynolds:
    Quote from @Zebuel Early:

    I'm an investor living in The Bay Area looking to purchase my first out-of-state asset in Northwest Arkansas. Prices are just too high for me in my market. However, having just switched over from a Sole Proprieter to an S-CORP, I'm having trouble getting pre-approved for a conventional loan due to my income on paper. My wife and I have quite a bit of equity in our home w/ a current 30 year fixed mortgage at 3.375%. We're looking into different ways of utilizing that equity for an investment property. I'm thinking of taking out $200,000 so I can make a cash offer when I find a deal worth jumping on. My options are: 

    1: a HELOC from a local credit union with an interest-only adjustable-rate payment for the first 10 years. The idea here would be to make the interest-only payments and eventually refi into a conventional loan. The payments would be about $625 per month on the interest which isn't deductable from what I understand, but it's a low monthly out-of-pocket fee.

    2: a Fixed Rate Cash-Out Refi locked in at 4.25% with closing costs around $5k. I'd be jumping up a whole percentage point and paying more per month but I'd have cash to invest. Plus you can deduct interest on a fixed-rate mortgage whereas you can't on a HELOC.

    *With all that's going on with interest rates and the war right now, what do you all think the best strategy is in using my home equity?  Do you think this is a smart move right now? Do any of you advise against it or do you have any other ideas or advice? Seems like a crazy time to invest but I don't want to just sit on the sidelines. 

    Thanks so much!

    Hi!  My husband and I are somewhat in the same position, except that we have already done a cash-out refi on our primary to purchase investment properties, and are now asking the question about whether to refinance some of our investment properties to pull cash out or use a HELOC.  I will say that using our primary residence's equity to purchase investment properties has really worked out well for us and I couldn't be happier that we decided to do it.  Good luck!


    There are fewer HELOC options on non-owner occupied properties than there are on your home.

    I use HELOC if I expect the loan to be short in duration. I use refinance if the loan is going to be long term or unknown term. This is because HELOC typically are variable and I do not desire variable loans for my long term loans.

    Good luck

    1Reply
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