HELOC or cash out refinance?

[Curtis M.]

Over the past 6 years we have purchased and still own properties in Denver. Even crappy real estate is expensive in Denver now and inventory low, so things have slowed down. Most of our money is tied up in higher-end rental properties, But we want to keep investing. A decent enough flip property pops up on my radar every few months but we are not always quite liquid enough to make cash offers. Typically we have about $300,000 in available funds. But that’s not enough to do any decent shopping plus rehab in Denver. In the neighborhoods we prefer, you really need around 600,000 available in order to buy a 400-500K rehab house and put $100k+ into it. I don’t really want to go through conventional financing so I want to leverage our primary residence and be competitive with a cash offer when the next opportunity pops up. We probably have about $450,000 equity on our primary.

We would primarily be using the money to buy flip properties only, selling again within four months of purchase. So I'm leaning toward HELOC. I thought about Hard money for a minute, but if I can just use my own money and keep my interest rates below 5%, that would be my preference. But I'm curious if any other investors have found themselves in a position like mine and figured out a strategy (Heloc, cash out refi, other?) that worked best for you.

[J Scott]

If you'll only need the money periodically and for short periods of time, a HELOC is probably the way to go.

That said, if you'll need the money often and far into the future, the obviously advantage of a refinance is that you don't have to worry about rising interest rates.

It's a trade-off, and there is no one right answer.  It really boils down to how you'll be using the money (how often and for how long) and how much long-term risk you want to take with interest rates.