Financial Investment Options Advise

[Deborah Chambers]

Hey all, I have been an investor for about 7 years now but I have multiple eggs in different baskets so it's not full-time. I have one investment property that has equity of 200K under mortgage that stays books as a mid-term rental out of state. I have a primary residence that has 200K+ equity under mortgage that has a HELOC account open but not used. I have the goal to buy one or two more investment properties to hold as mid-term rentals over the next two years. I spoke with a lender today to do a cash out refi on my investment property and with rates as they are currently I knew it was going to be high... either way what goes up must come down so rates will drop and I can refinance. My question is from a financial perspective- should I cash out refi my investment property first and leave my primary with the HELOC option or cash out refi my personal residence and leave the other... or do both? Any insight would be helpful.

[William Whitley]

Good evening, Deborah,

Like for most questions, the answer is it depends. One thing I would look at is the cost of debt. Compare the interest rate on the primary residence with the investment property. That isn’t necessarily the deciding factor, but it is something worth analyzing. All other things being equal, I would probably cash out refinance on the investment property; however, I wouldn’t want to take so much out that it leaves little margin between cash flow in and cash flow out. Ideally you would have positive cash flow even with a cash out refinance, and enough left over to continue to build up a cash reserve. The reason why I suggest using the investment property is hopefully you have a tenant paying that mortgage compared to you personally paying the mortgage on your primary residence. Additionally, you may be able to expense out the interest on the investment property, whereas you may not be able to do so on your primary residence. As always, I recommend having a conversation with your tax advisor to discuss the tax implications of one option versus the other.

I hope that helps.