How do you access equity on rental property?

Question

This is my first post on the Bigger Pockets forum, and I'm excited to be part of the much larger group moving forward.  I would love some guidance/thoughts on the below scenario:

I purchased a townhouse in the SF Bay Area (California) a few years back and have since moved to Ohio with my wife.  We kept the townhouse and are renting it out.  However, given appreciation in the area, we are now sitting on $200 - $250K in equity that I would like to be able to apply to additional properties.  Unfortunately, after calling many banks/credit unions/etc..., the HELOC strategy is not one that they are willing to do on investment properties.

How do you recommend accessing the equity on the house?  I've also considered a Cash Out Refi, but my rate is locked in at 3.75% so i'd see a significant rise in market rate if i were to do this.

Thank you for your help!

Kyle J. · Answer

@Stewart McIlvena Keep calling around until you find a lender that will do a HELOC on an investment property. There are lenders out there that do them, you just haven't found one yet. (I have two so I know they can be done.)

Here's a list of questions to help guide you when calling around: What You Need to Know When Shopping for a HELOC.

Michael J Perez · Answer

Lenders even if they will grant helocs or refis they want 30% equity on top of whatever you are trying to borrow. It’s incredibly hard to do it and have it make sense. So you have to get more creative.

Michael Boyer · Answer

Not sure from the facts, but if you lived there as a primary residence, I would check if you qualify for a home sale tax exclusion see e.g.:

https://www.nolo.com/legal-encyclopedia/the-250000...

Why not tap the equity free of capital gain tax  while you can--if you can  (though with some selling transaction costs).

Or if it was a rental or you want to keep the place and it cash flows well (distance rental, though) I like  exploring a cash out refinance and have done that with rentals before to tap the equity.

Best of luck!

Ham Merritt · Answer

@Stewart McIlvena Cash is King. How about a cash out refinance into a 15 year? Will they do a HELOC on a 2nd home or vacation home? Due to the distance from your primary residence, this could be a second or vacation home rather than an investment. Unless you need the rental income to qualify for the HELOC. If those are not options, then find out what the refinance rate would be. It should be under 5%. How much will it really cost you long term? If there is still positive cash flow it might be worth it to grow your portfolio. It's the cost of doing business.

Harjeet Bhatti · Answer

The lender do not like to go on 2nd position on investment. Keep your LTV lower to get better interest rate on cash out.

How do you access equity on rental property?

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