How to access equity from a property owned free and clear

You've actually got several ways to do this, and since the property is free and clear I wouldn't automatically jump to a cash-out refinance.

I'd start with how much money you actually need for the next deal and how quickly you need it.

If the ARV really comes in around $220,000, you've potentially got a pretty good equity position once the rehab is finished.

A DSCR cash-out refinance is certainly one option, particularly if this is going to remain a rental and you want to keep it in the LLC. How much you can pull out will depend on the completed value, rent, DSCR, seasoning and the particular lender's guidelines.

But I'd also look seriously at an investment-property HELOC.

There are actually HELOC programs being done on investment properties now that use DSCR-style underwriting. So you may be able to access the equity based primarily on the property's rental income and cash flow rather than going through the traditional personal-income qualification you would normally associate with a conventional loan.

That can be particularly interesting for an investor because you're combining the flexibility of a line of credit with an investment-property underwriting approach.

Even though there isn't a first mortgage, you can potentially establish the HELOC against the property and only draw what you actually need for the next acquisition.

For example, if the property ends up worth $220,000 and you're able to establish a $100,000 or $125,000 line, that doesn't mean you necessarily have to borrow $100,000 or $125,000. If you need $40,000 for the next acquisition, you draw $40,000. Then you still have additional liquidity available for another opportunity, rehab costs or reserves, depending on the terms of the particular line.

I'd compare that directly against a DSCR cash-out refinance based on total cost and what you're actually trying to accomplish, not just rate.

With the DSCR cash-out you're probably looking at a better long-term fixed-rate structure, but you're borrowing the money immediately and paying interest on the entire balance.

With the investment-property HELOC you're potentially paying a higher rate, but you're only paying interest on what you've actually drawn, and depending on the program you may be able to pay it back down and reuse the line.

Conventional cash-out is another possibility, but since you mentioned that the property is owned by your LLC, that's something I'd look at carefully. Conventional financing generally isn't going to leave an investment property vested in the LLC at closing, so you may have to move it back into your individual name. Depending on your reasons for holding your properties in LLCs, that may or may not be what you want to do.

There's one other thing I'd think about before doing any of them.

You're still rehabbing the property.

I wouldn't necessarily rush to put permanent financing on it before you've created the value you're trying to create. If finishing the rehab takes this from, say, $170,000 today to $220,000 completed, that additional value could substantially change how much equity you can access.

So I'd finish running the numbers on the rehab and then compare three actual scenarios: a DSCR cash-out refinance, an investment-property HELOC including the newer DSCR-underwritten HELOC options, and a conventional cash-out refinance.

I'd compare how much cash each one actually gives you, closing costs, monthly payment, whether the property still cash flows after the financing, whether you can maintain title in the LLC, and how much unused liquidity you still have available for the next deal.

The question really isn't just how do I get the most money out of this property.

I'd be asking how much capital do I actually need for the next deal, and what's the least expensive and most flexible way to access it without unnecessarily loading up a property I currently own free and clear?