LOC or Refi? Which is favorable?

[Edward P.]

Hey Guys,

I am looking to purchase a new investment apartment soon. Is it best to pull money from a LOC or to Refi the loan? I assume the Refi is more difficult but the LOC costs more. Do banks allow for LOC on an investment property?

Thank you!

[Nghi Le]

If the loan amount is big enough ($1M+), I've seen hard money be as cheap as 4% interest rate.  But what @Brent Coombs said is true; it'll never beat conventional. However, not everyone can qualify for the conventional, and that's where hard money falls in. The problem with cash-out refis and HELOCs is that you have to watch your DTI. Now you have enough down payment for the next deal, but the bank will say you're leveraging too much. Almost like you can never win with the bank.

Hard money and commercial loans offer more flexibility, but at a higher cost.  But for some people it's worth it, especially if the deal is good enough.