How to take equity out and buy another investment property?

[Wojciech Grajewski]

Hello,

I own a home on Long Island that is currently worth about $500,000. The house is fully paid for. I have about $48,000 in cash and would like to purchase my first investment property. Should I do a HELOC? Can I do a Cash-Refi? I do not want to do much if any renovations and with that said that houses are going for about $375,000 - $450,000. My Income is about $65K a year. What do you guys recommend I do? I would like to close within the next 6 months.

[Eddie Brady]

@Wojciech Grajewski I personally used a HELOC on my personal residence to purchase my first rental property and I was very happy with that decision. You don't pay interest on the money you don't draw, just like a credit card. And the rates are very low. Definitely look into that option

[Sasha Mohammed]

Depends on the terms of the HELOC. Personally, I dont like the idea of adjustable rates, especially in an environment where are rates are going up. I would rather a cash-out refi on a fixed rate, and use those funds for the next investment.
There is something appealing about having re-occuring access to those funds with a HELOC, but IMO, the cons outweigh the pros on a HELOC. 

There's no one-size-fits-all in mortgage, though, so I encourage you to look into the rate differentials between the two options, and pros and cons for both. I tend to prefer the stability of a fixed rate and payment to be able to plan for future with definitive numbers, as opposed to being at the mercy of the market on what my rate and payments will be down the road. Just my 2 cents, hope this helps! 

[Brandon Beardt]

Quote from @Wojciech Grajewski:

Hello,

I own a home on Long Island that is currently worth about $500,000. The house is fully paid for. I have about $48,000 in cash and would like to purchase my first investment property. Should I do a HELOC? Can I do a Cash-Refi? I do not want to do much if any renovations and with that said that houses are going for about $375,000 - $450,000. My Income is about $65K a year. What do you guys recommend I do? I would like to close within the next 6 months.

Hi Wojciech, it sounds like you can very easily do either a HELOC or cashout refi since your property is paid for. It kind of depends on how much you're trying to take out to use for the investment property. With $48K cash already, it doesn't seem like you'd need to pull out a lot of equity from your primary to put as a down payment for the investment property. You'll typically need 25% down for the investment property, so you're better off calculating how much you're willing and able to put down before pulling any equity out. HELOCs are good in that you can pull out only what you'll need and pay interest only on the amount you draw out. Cashout refi's will allow you to pull a lot more equity out, but then again, doesn't seem like you need to pull a whole lot out. Look into the local lenders in your area and ask them about different HELOC and Cashout refi options. They should be able to better direct you in a way that makes sense for your goals and plan. Hope this helps in some way shape or form! Don't hesitate to reach out if you have any questions and good luck!

[Daniel Meneses]

HELOC would be the way to go if you want to tap into the equity you have in your primary. Some banks offer something referred to as a "Loan in a Line" where you can put the money you pulled out of a HELOC into a fixed rate loan. This can be especially useful if you're concerned about adjustable rates as Sasha has stated.

[Dale K Poyser]

There are FIXED rate HELOCs out there but you'll have to shop around. I just got one with my bank. I spoke to a few lenders and they were surprised as they never heard of this option.