Using funds in a payed off home

[Alex Paz]

What's the best option to use funds from a payed off home? I'm wanting to use funds from a rental that I have payed off for another deal. The tenants there want to purchase the home but currently don't qualify for a loan. Should I do a cash out refi and potentially hurt my cash flow so that I can use the funds for another deal or two. Another option I've been thinking about is getting a line of credit and only using the amount I need for another deal. Any advice helps.   

[Ricardo R.]

Hey Alex,

We’ve been through this exact decision with other investors, I have pondered many times over and have done it both ways—here’s how we usually break it down when there’s a paid-off rental, tenants who might buy later, and plans to use equity for more deals:

1. Cash-Out Refinance

• Pros:

  • Fixed-rate loan gives you certainty in monthly payments—big plus for investors.

  • Cash out now = immediate funds for your next deal or two.

  • When rents go up (and they will over time), your cashflow dip is temporary—eventually the loan gets cheaper relative to income.

• Cons:

  • Yes, you’ll lose some cashflow right away because of the new mortgage.

  • Closing costs and time to fund can be higher than a line of credit.

2. HELOC (Home Equity Line of Credit)

• Pros:

  • Flexible—you only pay interest on what you draw.

  • Fast access to capital for deals as they come up.

• Cons:

  • Variable interest rates can jump on you, which kills long-term predictability.

  • As investors, we want constants in our portfolio, and HELOCs create one more moving piece that can eat into margins if rates rise.

  • Banks can reduce or freeze HELOCs in certain market conditions.

3. Other Factors for Your Situation

• If your tenants eventually buy the home, a cash-out refi sets you up to take advantage of the sale without leaving equity idle.

• If you plan to hold long-term, the fixed loan from a cash-out refi is safer since it locks in your largest expense while rents keep climbing.

If It Were My Property

1. I’d likely do a cash-out refinance, lock in a fixed rate, and accept the short-term dip in cashflow.

2. Use those funds for 1–2 new deals now while the rental income slowly catches up to the new mortgage.

3. Skip the HELOC unless you have a very short-term project where flexibility outweighs rate risk.

4. I hope this helps you make your decision, sent you a DM on BP, hope you can assist as well.