HELOC or Cash out Refinance?????

[Chad Belcher]

I recently bought my second rental property which was a foreclosure which I only payed 3,620 for and is around 1550 square foot which it did require a lot of work but I used some leverage, I have a HELOC on my first rental property which is paid for and I had use about 42,000 of my HELOC and around 25,000 out my own pocket to complete the house so all in I'm around 65,000 and the ARV on the home is around 100,000- 105,000 and the house will rent for about 1,150 a month taxes will be about 900/year and insurance around 1700/year. My question is should I do a straight cash out refinance and pay off my other HELOC and pay myself back around 20,000 and continue to use the first HELOC I have to buy another house and continue the cycle OR should I take out another HELOC on this house and still pay myself back around 20,000 and use the rent to pay for the monthly HELOC payment which would leave around 55,000 in credit I could use to buy another property my only thinking with the HELOC is that if I use that then the as I pay it down that money becomes available to me again and with the refinance yes I will get cash but as I pay it off that money will never be available to me again. I know with either option I would still be getting some pretty good cash flow. I might be looking at this all wrong and i know your probably thinking SELL,SELL,SELL but I would like to keep it for a few years or possible longer being that I anticipate the home values to go up due to a lot of new jobs being created in the area.

[Stephanie P.]

Originally posted by @Chad Belcher:

I recently bought my second rental property which was a foreclosure which I only payed 3,620 for and is around 1550 square foot which it did require a lot of work but I used some leverage, I have a HELOC on my first rental property which is paid for and I had use about 42,000 of my HELOC and around 25,000 out my own pocket to complete the house so all in I'm around 65,000 and the ARV on the home is around 100,000- 105,000 and the house will rent for about 1,150 a month taxes will be about 900/year and insurance around 1700/year. My question is should I do a straight cash out refinance and pay off my other HELOC and pay myself back around 20,000 and continue to use the first HELOC I have to buy another house and continue the cycle OR should I take out another HELOC on this house and still pay myself back around 20,000 and use the rent to pay for the monthly HELOC payment which would leave around 55,000 in credit I could use to buy another property my only thinking with the HELOC is that if I use that then the as I pay it down that money becomes available to me again and with the refinance yes I will get cash but as I pay it off that money will never be available to me again. I know with either option I would still be getting some pretty good cash flow. I might be looking at this all wrong and i know your probably thinking SELL,SELL,SELL but I would like to keep it for a few years or possible longer being that I anticipate the home values to go up due to a lot of new jobs being created in the area.

Before we get into  what to do, take a moment and be proud of what you've done.  You bought right, kept your reno well within acceptable  guidelines and have a cash flowing property.  Nice job.

If it were me, I would get a straight refinance on that property and free up my HELOC and do it again. We are (and have been for some time) in a historically low rate environment, although it's been rising for the past 3 years. Lock in that property with a low fixed rate, pay off your HELOC and do it again and again and again until you're full. Then work to pay them off.

Again, well done.

Stephanie