Cash out refinance or Heloc?

17 Replies | Austin, Texas

Been interested in investing in Real Estate for over a year now. Just been trying to learn as much as I can through books and podcast. I own a home in Round Rock, Texas and it’s worth about 190,000. Still have some remodeling to do but houses are selling over 200s in my neighborhood. I owe 95,000 on the loan I’m in between doing a cash out refinance pulling out 50,000 to start my investment career or getting a home equity line of credit. I was leaning towards the refinance because it seem like interest rates are continuing climbing and heloc’s are adjustable. Any advice on this please?

Is the house your primary residence? You cannot get a line-of-credit on investment properties in Texas.

If it is your primary residence, I'd get the HELOC unless you think you're going to buy something else soon. Otherwise, you're paying interest on $50k that's just sitting in the bank. With a HELOC, you have it in your back pocket and don't pay any interest until you find a deal.

Just talked to my Lender and yeah, it does seem like the Heloc will be a better option for me. Excited to start looking into my first investment property. Going to take my time and buy right. Appreciate your input!

Learn about the BRRR process. Basically, use your HELOC to both buy and fix up a rental property. One fixed up and rented, apply for a cash-out refinance. Assuming you did your numbers right, you'll get an appraisal number high enough to cash out all the money (purchase and fixup, and maybe more) you put into the deal. Then you can much more quickly pay off your HELOC and repeat the process over and over again.

There is much more detail to this method, but gives you a quick idea that your one pot of money (the HELOC) can be recycled and used to buy more and more properties.

Nicole's advice is good. It depends a little on what you plan to do with it. You can get lower interest with a cash-out, but the HELOC would work better for a short in-and-out scenario. Personally, I flip with my HELOC because I'll only be using the cash for a little while--and its a ton cheaper than hard money.

I'm here in Round Rock, so if there is any way I can be a help to you, let me know. 

@Charles Salim @Andrew Allen FYI - you can get a LOC on investment properties in Texas. You cannot get a HELOC on investment properties (there is no such thing for investment properties, that is a residential loan product), but if you ask a commercial loan officer about portfolio or asset based line of credit you can get a LOC on investment properties. The key is to ask the right lender for the right product - a regular mortgage banker will tell you "no can do".

The HELOC/LOC is the way to go - interest is charged only when used and you can pay it down and reuse it.

FYI, Amplify was giving a 50K LOC just for being a home owner (not a HELOC). Then maybe you can use the HELOC to buy and the Amplify LOC for repairs. But where/how do you find good deals in RR?

@Charles Salim in my opinion, it depends on how you plan on investing the money. If your plan is to do a BRRRR or a flip, a HELOC is probably the best way to go. If you plan on buying a more turnkey type rental, a cash out would serve you better.

@Jeremy VanDelinder thank you, I appreciate that!  Definitely can use somebody to reach out to

@Andrew Allen something to think about on the LOC. I would like to do the brrr strategy if I can find a good enough deal but like you said it may be kind of difficult to find a good enough deal in the RR area with the property taxes keep rising but sure there are some out there.

Was considering looking towards Waco, Killeen or maybe even San Antonio area but would love find something in RR area.

Originally posted by @Charles Salim :

@Jeremy VanDelinder thank you, I appreciate that!  Definitely can use somebody to reach out to

@Andrew Allen something to think about on the LOC. I would like to do the brrr strategy if I can find a good enough deal but like you said it may be kind of difficult to find a good enough deal in the RR area with the property taxes keep rising but sure there are some out there.

Was considering looking towards Waco, Killeen or maybe even San Antonio area but would love find something in RR area.

don't look to waco if you're looking to avoid high property taxes. the city is already at 2.84% and the county is trying to capitalize on the Magnolia Effect by jumping up 2018 values by double digits across the board. The yoy protests have gone up 400% because of how high some people's valuations have spiked.  

@Jason D. thank you! Think I’m going with the Heloc. 

@Marshall Hooper that’s good to know!  Was even thinking about Houston area since it’s on the to way to my home town Beaumont.   Obviously I have alot of researching to do..ha. 

Would like to get into a small multifamily not sure how far 50 grand can take me.

I would do a refi. But make sure you have somewhere to place that money because now your mortgage is going to go up. $50K isn’t much money unless you leverage that for a rental. Even then if you get a decent rental like here in SA you might go through that with down payment and some updating. I have no idea what you can do with that in Austin.

With the Line of credit I can take it out when I’m ready and the first 5 years is just interest payments and then the total loan will be due in 15 years after that. There’s no closing fees associated with it. I’m leaning towards the Heloc but I have to find a property that I can improve the value or I think the Refi would be a better option

@Costin I.   Were you referring to a $50K UNSECURED lined of credit from Amplify, just for being a homeowner? When was that? Seems like a convenient tool for variety of purposes, both rehabs and buy and holds purchased at a discount.

That was a year ago - I can't find it anymore on their site with a quick search. They still have a "HOMEOWNER EXPRESS PERSONAL LOAN" - here are the advertised features:

  • Loan amounts up to $40,000
  • Available in fixed terms up to 10 years
  • Fixed rate for the life of the loan
  • Funds available within 24 hours of loan approval
  • No home equity or lien required
  • Use the funds for anything!
  • Application feesNONE
    Closing costsNONE
    Prepayment penaltyNONE