Real Estate Investor · Jersey City, NJ · Member since 2013 · 30 posts · 1 vote
Hi everyone,
I bought 2 (2 family) properties in New Jersey in Dec 2013. I believe both of them have appreciated by $100K each based on the comps in the area. I'd love to take equity out of these home to buy another investment property. What would be my best bet - Cash out refi, heloc or home equity loan?
If you guys have any suggestions outside of these 3 options too, please let me know. I already have 4 multi-unit conventional mortgages under my name if that is relevant.
Investor · Plano, TX · Member since 2014 · 188 posts · 149 votes
10y
1. HELOC - Cons: A little higher interest rate that is going to be variable. Pros: you pay interest only as you need it, therefore there's no holding costs to the money. Also, it might be lower cost to originate the loan
2. Cash-Out Refi - Cons: If you don't know where to the use the money, you have holding costs to keep that much money. Every month, you'll pay $500 per 100k borrowed. If you can use the money in 3 months, then its ok. But if you sit on it for a year, you're out $5000. Origination fees on refi is like taking a full loan. Pros: One lien, Fixed-term rate that the bank can't change. Biggest Pro: You actually have the Money!
3. Home Equity Loan - 2nd lien, you have 2 mortgages now. You have less flexibility. But you have the cash and have same problems with having to use the cash immediately.
Personally, I try to maintain a balance of commercial grade LOC's and fixed-term loans for flexibility purposes. Since the loan amounts are low, try to compare the fixed costs and see what % it makes of the actual loan. I hate spending more than 1% on origination costs like appraisals, title etc. Why spend $2700k in fees for borrowing $100k?
Residential Real Estate Broker · East Orange, NJ · Member since 2014 · 297 posts · 26 votes
10y
@Manshi M.I would look at each of those options and see what the interest rates and the cashflow numbers on each. I would be looking for the most net operating income and the lowest interest rate.
Investor · Plano, TX · Member since 2014 · 188 posts · 149 votes
10y
1. HELOC - Cons: A little higher interest rate that is going to be variable. Pros: you pay interest only as you need it, therefore there's no holding costs to the money. Also, it might be lower cost to originate the loan
2. Cash-Out Refi - Cons: If you don't know where to the use the money, you have holding costs to keep that much money. Every month, you'll pay $500 per 100k borrowed. If you can use the money in 3 months, then its ok. But if you sit on it for a year, you're out $5000. Origination fees on refi is like taking a full loan. Pros: One lien, Fixed-term rate that the bank can't change. Biggest Pro: You actually have the Money!
3. Home Equity Loan - 2nd lien, you have 2 mortgages now. You have less flexibility. But you have the cash and have same problems with having to use the cash immediately.
Personally, I try to maintain a balance of commercial grade LOC's and fixed-term loans for flexibility purposes. Since the loan amounts are low, try to compare the fixed costs and see what % it makes of the actual loan. I hate spending more than 1% on origination costs like appraisals, title etc. Why spend $2700k in fees for borrowing $100k?