HELOC VS CASH OUT REFI ??

[Max Lopatin]

For those of you using the BRRR strategy (Buy, rehab, rent, refinance, repeat). My questions is when you refinance, are most of you doing cash outs or HELOC and why?

My thoughts are:

- If you use a HELOC (home equity line of credit) to invest as a down payment the additional payment might not let you cashflow.

- If you do a cash out refi, won't that add to your original mortgage killing all your equity and adding more debt?

I would love to hear everyone's thoughts. Thanks in advance. 

[Brad Coyne]

Hey there! I am currently doing a cash out refi on a property of mine that I bought and rehabbed this year. Here is my example: I bought 2 homes on one lot for $40,000. Mortgage is about $235 a month. I put about $20,000 in to them to rehab them. So I am in to them around $60,000. They are currently worth about $110,000. I will get %75 of that for the refi which is $82,500. I owe $32,600 on the original mortgage because I put $7000 down. So after the refi I will walk away with about $29,900. This allows me to recover my down deposit and the $20,000 I put in to them. Now my mortgage with be $544.00 a month. Both units rent out for a total of $1250.00 a month. Taxes are $150.00 a month and insurance is $60 a month. $754 a month for my total expense. So yes, my cash flow has decreased on these each month but now I have all that money I put up back in my pocket plus an extra $29,900. This will allow me to go look for more properties just like these. Hope this helps.