Understanding Cashout REFI vs. HELOC

2 Replies

Hi guys, Will here, new to bigger pockets, I've learned more in the past 3 weeks about REI than I ever thought possible thanks to this site and all you experienced members willing to share info with people like me!

I have run into a mental block...I think what may be happening is I am getting a HELOC and a cash-out refinance confused..

let's say property #1 was bought for 55k via traditional 30-year ARM (primary residence) the home is then lived in, rehabbed, let's say that takes a year or so, property is appraised at 90k, a couple banks details on their websites state that they offer 65-75% LTV for cash-out refi of primary residence...says nothing about how much you owe on it, but then when I look at the details of the HELOC it's

90,000(home's value)X .9  -MINUS- amount owed on mortgage.

Essentially what I am saying is that the first option, refinancing a good deal/rehabbed property at 65% LTV then buying a rental home and getting in the game with that cash-out refi money just seems too good to be true.

SPECIFICALLY, my questions is...In your individual experiences, do cash-out refinances ALWAYS have a "less amount owed on mortgage" clause? I realize different banks and lenders offer different products, I want to know specifically the nitty gritty details of..

1) The length of time you held the property before refinancing

2) The actual refinancing deal you got 

3) How much you were actually able to pull out of the deal to fund your next property etc..

4) How quickly/slowly, AND how much equity you were able to accumulate. 

Thanks!!

you can't lend more on a property than the equity.

so if the house is worth 90K and you have a 65K loan on it, you only get 25K to work with. if it's a 90% HELOC then how you said it is correct. This is how HELOC works. they can't lend you more than is available in equity

90,000 *.09 = 81,000 - debt service

a cash out refi won't be that way because they are going to require a first position. it'll look the same, but they will force you to pay off the original loan.

90,000 * .75% = 67,500 - 55,000(original loan) = 12,500 cash in pocket

1 length of time depends on the product you use. traditional fannie loans is 6month seasoning. delayed finance exception is 0 seasoning (but can pull out only YOUR cash input)

2 my last cash out was 75% LTV @ 4.5%

3 last deal I was all in for 65K and pulled out 69K after loan costs

4 deal took ~4 months.

Thanks so much for your reply @Alexander Felise 

So, theoretically, as a beginning investor let's say I run my numbers correctly, purchase a property that is worth purchasing, and then do a cash out refinance after it has appreciated (naturally or forced or both), and, if done correctly, you will essentially just have to continue to pay off the original value of property #1 via your new cash-out refi loan product but get to pocket the excess and use it for future deals. Sorry for my lack of understanding, like I said I am new to this and understand some things in principle but I love to hear from people like you who are actually experienced. 

Lastly, may I ask how you went about purchasing your first property and then the next one after that? I know different people have different methods they've used. Basically just asking for a general answer about..

At the time you first got started into REI..

 1) Your primary residence/living situation

 2) disposable income (if any) you had to buy your first property 

 3) and the strategy used to buy your next property.

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