Heloc vs cash out refi for long term holds

[Scott Goulet]

Hey there BP!

Hope you are all having a great Q1! I have been doing my 90 days of intention journal and find myself definitely on task more often than without it, so that has been helping for sure. On to my question...

I have a goal this year of acquiring a 16 unit apartment complex and have about half of the needed DP saved up. I have a good amount of equity in my properties and would like to utilize that equity in a down payment toward my 16 unit.

I've heard helocs are great options, but I have also heard that they are probably better utilized in a short term scenario.

Would a cash out refi be a better option if I am going to use these funds toward a down payment of another property or would a heloc be a better option?

Thank you so much for your insight.

[Taylor Dasch]

I did a lot of research on this recently as well and came to the conclusion that a cashout refi would be better when you are using the funds for a down payment. I think the biggest advantage of using a HELOC is when you are rehabbing properties and plan to pay it off quickly, and then keep doing that over and over. To me, it depends on the return your getting from your property. Im probably wrong in some aspect of this, but if your property is a good enough deal to pay the usual expenses as well as the HELOC and still produces cash flow, It would be better to keep the equity in the properties and when the HELOC is paid back you can cashout refi and buy a 32 or 64 unit. Whereas using a cashout refinance you would lower your cash flow on your other properties, which is still not a bad scenario since the percentage of return will most likely be way more than the percentage lost on cash flow from the refinanced property. Great question though I am interested to see what other people say and congrats on the 16 unit goal that is a big goal and I think you will get it!