cashout refi vs HELOC on investment property

[Michinori Kaneko]

Hi all,

There was a property i was hoping to perform a BRRRR strategy, but realized rent is not high enough to support mortgage on 75% LTV to yield enough positive cashflow after cashout refi. the cashflow is like $30 a month, but the principal repayment is about $3600+ per year. Moreover, unlike a true BRRRR, even with 75% LTV cash refi, i'd still be short about $5-10k of cash (meaning i can't pull out all the money i put in between purchase, rehab, and closing cost), which puts me around 40~70% total return only including principal repayment + annual cashflow (exclude appreciation in the property and 25% equity that i built). So looking at it as a whole, even though I end up with some cash in the investment i think it would turn out to be a great investment. The question is, what if I don't cashout refi? What if I setup a HELOC instead? this essentially allows greater cashflow when i don't need the money, but will also allow me to take out cash as I need. Even if I cashout refi, the cash will be sitting at a bank earning 2% interest rate (annually) until i source another deal and put the money to work, where as with HELOC i wouldn't have to pay mortgage/interest on it until I pull out the money. the only downside is probably that interest rate on HELOC will be higher than if i used freddie/fannie loans and its variable rate. Are there any other considerations I should have? why would people prefer cashout refi over HELOC in the BRRRR strategy? Thanks for your help and clarification.