Cash Out Refinance vs HELOC for Investment Property

[Coley B.]

What do YOU prefer - LOC or cash out refinance to pull out equity in a non-owner occupied investment property?

I have a long-term buy and hold strategy. I purchased and renovated a multi-family investment property over the last 2 years. So I want to pull out the equity to buy another property. I plan to do the same thing over and over (buy, renovate, rent, cash out, repeat). I understand the pros and cons of refi vs. LOC. I also understand the difficulty in pulling cash out. I'm simply wondering which one do YOU prefer and why (refi or LOC)?

- Looking to pull out $100-150k

- Current loan is 4% over 30 years

- Refi closing costs in Chicago are about $2k (includes appraisal)

- Wells Fargo would charge 1% on LOC loan amount plus annual fee of 0.25% (approx. $1,000 - $1,500 in closing costs plus $250-$375 annually)

I love the flexibility of the LOC and not having to pay interest until I use it. Plus since I'm simply gonna use it for a down payment on next property I would simply rinse and repeat. But with interest rates so low and my very long term buy/hold strategy should I simply refinance at a slightly higher rate (4% --> 4.5%) so I can lock in that extra cash at a low rate over the next 30 years? I'm thinking a cash out refi makes the most sense.

[Lumi Ispas]

Hi Coley, 

Here's my two cents: If you would flip properties, and reuse the money in different projects, or invest it at a higher rate than what you are paying the bank, I will say use the HELOC.

However, as you are planning to use the money towards the down-payment of another property, the money will be locked for a long period of time and you won't be able to pay off the HELOC, therefore, there are no benefits of having the HELOC.

Good luck to you and message me if you would like the information of some of the top lenders in the City!