HELOC vs Cashout REFI

[Chris Hewitt]

So I closed two weeks ago on two townhomes that together make up one duplex. Because the purchase price would have made the loan below lending standards (49k for each one), I had to get creative and buy them both for cash. My original plan was to put a HELOC on each unit and pull 80% of the value out to recoup my cash, however now I'm considering doing a cashout refi in six months for the same amount or more.

Using the HELOC, my original plan was to take a 50k line on each unit and use all of my cash flow (no money set aside for reserves/profit) to not only pay the interest but also the principle down. Using this strategy, I'd pay one HELOC off in roughly 56 months, and the second one off in another 44 months. So essentially in about 8.5 years I'd have both units totally paid off and in the clear. During that time I'd also have the line of credit to pull on for repairs/vacancy/maintenance, and I'd have that line already established for my next investment.

The second option is to put traditional mortgages on them in 6 months once the sale seasons. This yields the same amount of money, however stretches the payments out over 30 years vs 8.5. I will cash flow less, and I won't have the line of credit to pull on. Nothing says I cant put a line of credit on it once the balance is paid down, but it will just take longer.

I’m leaning towards putting the HELOCs on them as it gives me more flexibility, however with interest rates climbing that could bite me. Thoughts?