Advice Requested: HELOC vs Cash out refinance -Prepping to BRRRR

1 Reply

Hi All,

     A little about myself, im new to the real estate investment arena,  but and fairly good with financials, and just wanted to bounce my thought process off a few folks in hope someone more experienced can provide me some guidance. I know this is a bit long but would really appreciate a sanity check from a few folks. 

   I have pivoted my investment strategy from traditional investments to thoughts and dreams of real estate rentals. I bought my first home a short sale at age 25 in 2009 ( house in the north east @275k) .  At that time I had the brilliant idea that I should pay this off as fast as I can, and had several roommates over a 8 year period, and accomplished my goal of being 33 and mortgage free (perfect time to throw all my cash into a loan at 3.25% in a bull market.. mistakes were made) .  Im fearful as many are im sure of a market readjustment (stock and real estate) in the next 12-18 months and have been thinking about how to best prepare for it so I can take advantage of property at a discount as the cycle starts to decline. I have saved up a reasonable amount of stock investments over the last 18 months, and have started to pull out as my concern continues to grow over the market reaching its peak as my shares start going to long term cap gains.  

My home is now valued at 375k and I am considering two options. One being a HELOC with its variable rate for anything borrowed, but very minimal fees until I choose to use money. The other option is a cash out refi. I spoke to Quicken loans today and they claiming I can get a 3% loan with up to 85% LTV, due to my credit score being 830. This got me thinking. If I pull out a substantial amount @ 3% (250k) assuming a few thousand in fees, and hold that in a high yield CD or Savings account at 2.5% Id only be losing .5% on the amount borrowed and can wait until the market readjusts and start BRRRRing in a lower cost area in the Midwest/ South west.

Is this a reasonable strategy? The loan rates they quoted seemed too good to be true, but Im concerned with a HELOC if the market drops, and the interest rate is variable, when the Feds start raising rates It would see to be far less beneficial to go that route vs paying .5-1% with a cash out refi, when im putting it in a high yield account, and holding onto the cash.

Thanks so much, Marshall

@Marshall Milinazzo

Check to see how many points they are charging you. The rate does seem too good to be true.