Paying off Home or Refinance and Take Cash Out- advice please!

[Mary White]

Okay, so I know much of the advice out there says to leverage your primary home to increase your capital for buying properties. I'm considering going a different direction and paying off our primary home to increase cash flow. We bought our primary as a foreclosure in 2011 for $140,000 and currently owe $126,000. The house is valued at $220,000 so there's plenty of room to refinance and pull out enough money for a multi-family down payment. We own 2 multi-family units (10 total doors) and could buy 2-8 more doors with the cash out money. With current rental income we can save $3000/mo towards additional units separate from our personal expenses. Is it wise to accelerate the timeline and do a cash-out refinance for more properties faster or pay off the home mortgage and mitigate risk?

Option 1: Cash out refinance to purchase new property/Increase Cash Flow: + $1000/mo

Option 2: Aggressively Pay off Home: + $1000/mo

[P.J. Bremner]

@Mary White

You can actually do both with a different product. Look into a HELOC. See if there are any banks that can refinance your entire mortgage into a HELOC. The benefits are this:

• Every penny you pay towards the HELOC balance reduces the monthly payment for the following month (reducing your monthly cost - Keep in mind if you pay extra towards a regular mortgage it will pay off sooner, but will NOT reduce your monthly payment).
• The money you pay against the HELOC is still accessible at any time. If you put 100% of your cash into the house, you can pull it back out whenever you need it.
• When you find the next deal, you can deploy the capital immediately.  If you don't find the next deal, you don't have money sitting around not earning you a return.

The downsides to HELOC:

• The interest rates are variable and can increase. If you plan to make minimum payments until the house is paid off, then don't use the HELOC as you will most likely have a better return using the standard 30 year fixed.
• After 10 years, the HELOC draw period is over (cannot pull money out) so you would have to refinance and open another HELOC.

My personal opinion on this strategy is that it works really well for those who hate having money sitting idly around but may not have a ton of deals ready to go after. If you have more deals than you have money, maybe just pull the equity out depending on the interest rate. But if you're like me and 95% of the other investors on BP, you can probably earn an immediate return by paying the house off but still having access to it with the HELOC for when that deal does pop up.

Best of luck!