HELOC vs Home Equity loan VS Cash out refinance, dilemma!

4 Replies

Hello BP community, My name is Christian Barra and I have a nice BRRR poject. I bought a property on cash, repaired it successfully and rented it for 7 months now. At this point, I want to refinance it to get my funds back to go to a next project. Here comes the dilemma. I have done some research ( maybe not enough) but I would like to get some help to pick which product is best for real estate investing.

  1. Cash out refinance, I can get 80% ARV with 3% closing cost
  2. Home Equity Loan, I can get 80% ARV taking a lump sum of money now.
  3. Home Equity line of credit, I can get 80% ARV with a lower interest rate.

I would love hear your ideas or experience. it is very different, seeing this products from real estate investor angle.

Thanks

Christian,

Congrats on the successful BRRRR. The end factor of a BRRRR is of course the refinance aspect. I would say your next step should be based off of your next investment. Refinancing is nice, especially when you have to pay an investor back, but since you paid cash the refinance can go in to the next project. A HELOC or home equity loan is slightly concerning from the aspect that you are borrowing against your property rather than using a refinance based on ARV pricing. The property will in turn pay for itself at some point and gives you money to leverage in the mean time. This money can be the next down payment on a house, which is exactly why this system works so well. I'd rather pay the one time fee in closing costs then worry about accumulated interest, which you are already paying on the mortgage for the home as is. Since you paid for the property in cash this isn't a big issue. I'd say stick with the refinance, but at the end of the day whatever numbers work is what you should go with.

Best, 

Ryan 

@Christian Barra , due to the new Trump tax laws, you should NEVER touch your residence.  The new Trump tax laws made it ALMOST impossible to itemize.  There are other rules as well.  I am NOT well versed on them.  See a CPA if you have an interest in using your residence like a 'piggy bank'.  

As a result, what you should do is pay off your residence as quickly as possible.  Then refinance your rentals for cash out refis.  Let your tenants pay for your projects, not you.

Hope that helps.  

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