Cash Out Refinance to 10% equity?

4 Replies

I own a $300k home that’s approaching 20% equity. I am considering taking a HELO out to effectively drop my equity to 10% and give me $30k to purchase an investment property at 10% down. I have come across a strategy whereby I’d take $30k out on a credit card to use as the down payment with no fees. Then I‘d immediately do a HELO against my ”credit card debt“ and pay off the credit card off with the HELO. The thought behind this being that banks will offer a HELO to pay down usecured debt, but would not do a cash out refinance or HELOC when I’ve only got 20% equity in the one property. This would effectIvely give me $30k cash and 10% equity on each property if i purchased a second place with $30k down at $300k all in. BP...what do you think?

Thanks Michelle, that's correct that a HELOC would be at 80% LTV. In order to skirt that requirement I'm considering a standard home equity loan (HELO) in the form of "debt consolidation" to pull out 10% equity leaving me with 90% LTV - not available through a standard HELOC.

@Whitney Bowling I'm one of those investors that leveraged too much in the past and have learned from it. IMHO, keep your equity and find capital partners that can finance your deals or save up the money yourself from income. If you leverage up and things don't go the way you plan, you put yourself at financial risk.