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Updated over 4 years ago,
Factoring cash out refi or HELOC into rental property
I'm looking at two options for tapping into my primary home equity in order to make the down payment for 3-5 rental properties in the next year. I'm looking to make sure I correctly account for this additional debt servicing when shopping for rentals...also looking for opinions on which one of these options is better.
Here are the rundown on numbers:
Estimated home value: $400K
Remaining mortgage: $222K
Current loan: VA @4.5%
Option 1 - Streamline refinance to reduce the rate to 2.5%, bringing my payment down. Then take out a HELOC to fund the investments and factor the HELOC monthly repayment when determining cash flow on potential properties.
Option 2 - Cash out refi at 2.25% for 90% LTV ($360K). Use that to fund new investments. I'm not 100% sure how to properly factor this into my cash flow calculations. The total monthly payment on the loan would only be $100 higher than what I have prior to the cash out refi, but it would be ~$500 higher than what it would be with the streamlined refi + HELOC. I assume the latter is the best thing to use in order to make sure I'm truly cash flow positive here?
Anything I'm missing? I'm leaning towards a HELOC if I can find one with a higher LTV. 75-80% doesn't quite get me to where I want to go for 3-5 properties.
Thanks for the advice!