Cash-out Refi vs. Conventional Mortgage

[David Tecchio]

I will be purchasing my first rental property and I own my primary home outright with no mortgage. The property costs $210,000 and my home’s value is 465,000. I am not sure what the right way to finance this would be. I could take out a conventional investment fixed rate mortgage that seems to have a slightly higher interest-rate than a regular mortgage. The other thing I am considering just taking cash out refi on my primary home to pay for the rental property in full and then subsequently expensing the mortgage on the rental as it will be used to fund my rental. If I did the latter, would it be two different closings and two different sets of closing costs? What would be advantageous and why would one choose one option or the other? Thank you very much for everyone’s help.

[Jaysen Medhurst]

@David Tecchio, I recommend looking into using a HELOC on your primary to fund the investment property. There are a number of advantages: much lower loan fees, you don't pay any interest until you actually use the money, when you pay back the HELOC, it's available to use again on another deal.

Yes, the interest rate is a little higher than a refi and terms are usually shorter, but if you use it as smart, short-term debt it can be a great strategy.

1. Use the HELOC to purchase the investment in cash, giving your offer a competitive advantage.
2. Renovate / update the investment property as necessary.
3. Put long-term debt on the investment property and pay back all, or most, of the HELOC.
4. Rinse and Repeat.

This is basically a modified BRRRR method.