How would you handle this?

[Drew Eldridge]

I was recently posed a question and I'd love to hear your thoughts? Let's say you have a typical small portfolio with buy and hold properties that are leveraged (let's say 70% LTV) but own one property outright. And let's arbitrarily say that the fully owned property is $200k appraised value. The goal is to take cash out (we'll say $150k or 75% LTV) to then use to purchase properties using the BRRR strategy. Therefore, this cash would typically only be tied up 3-6 months (and I know some require a year or so seasoning but let's use 3-6 months) at a time and then recycled to do the same thing again.

Assuming both are options, would you:

A.  Get a mortgage for the $150k.

B.  Get a line of credit for $150k. 

Obviously both have slightly different tax consequences, affect your balance sheet differently with regard to net worth, and many more implications. But I'd love to what you'd do and if it's in line with what I suggested.  

[Linda S.]

@Drew Eldridge,

I would go to a bank, get a mortgage and put down the 20-25% needed, if it's a simple question. 

It all depends on what you're buying, and what kind of a market it is, because you're absolutely right-- cash is king!  We only do cash deals, so much simpler,faster and easier!    If your market is very hot and there are multiple offers likely, then you'd be better off with the equity line and being a cash offer, and then later pulling out the cash.    If it's not a competitive market, check out recent sales, and see if there is a big discount for cash buyers, if it's significant, that'd make me  change my plan.      You really need to look at all the details,  and determine what's the best option, as it's not a quick apples/apples.