Refiancing Home Loan or Home Equity Loan

[Hector Lewis]

Hello,

I currently have a mortgage loan on my home.  I have approximately 40k in equity.  I am thinking about taking out this money so I can invest in a rental property.  I am new to this whole real estate game.  My question is there a difference between Refinancing my home loan and a home equity loan?  

Thanks,

Hector

[Jaysen Medhurst]

Sure @Rik Patel. For simplicity, we'll put aside holding/buying/selling costs.

Let's say you take out a HELOC on your primary residence for $75k. Then you:

• Buy an investment property for $50k
• Renovate for $25k. When finished the ARV is $100k.
• Rent for $1k/month
• Refi at 75% LTV after 6 months, which returns your original $75k of capital
• Repeat the whole thing again

This is how you can continually recycle the same capital to do multiple deals. When between deals the $75k stays in your HELOC. Since it's not being used, there is no interest charged.

Make sense?