Advice on pulling money out of a property

[Tom Dausch]

Hey Yinz, (Pittsburgh Slang)

My business partner and I have a property that we are rehabbing and getting ready to rent that we own free and clear. We are considering looking to pull some money out of it for another deal and need some advice. We have all of our properties in an LLC and we typically finance them with 20% down on a 15 or 30 year fixed rate. I was wondering what type of financing we should be looking for and what should we ask the bank for (HELOC??) and what are good interest rates and are they typically fixed rates? I just want to get some recommendations before speaking with the banks.

Thank you

[Chris Mason]

Originally posted by @Tom Dausch:

Hey Yinz, (Pittsburgh Slang)

My business partner and I have a property that we are rehabbing and getting ready to rent that we own free and clear. We are considering looking to pull some money out of it for another deal and need some advice. We have all of our properties in an LLC and we typically finance them with 20% down on a 15 or 30 year fixed rate. I was wondering what type of financing we should be looking for and what should we ask the bank for (HELOC??) and what are good interest rates and are they typically fixed rates? I just want to get some recommendations before speaking with the banks.

Thank you

HELOC is a good option if you aren't sure when you will need the funds and/or if you will need them at all. This is because you can keep the balance at $0 and not pay interest on money you don't need yet. If you do need the funds, boom there they are with a mouse click and you can later refinance the debt into a 15/30 year fixed.

Fixed rate traditional 15 or 30 year mortgage will be the option to go with if you're 100% certain that you will need the funds within the next few months and/or have some other place you can put the money to work before/unless you need it.

The reason that HELOCs aren't the best 100% of the time is that they are typically ARMs and there are closing costs to consider. HELOC is placing a bet on the possibility that you will not need the funds soon, or maybe at all. 15/30 year fixed is placing a bet on certainly needing those funds, and relatively soon. You don't want to take out a 30 year fixed, pay interest on it immediately, and then just have that money sitting in a checking account earning 0.2% for a year. That would be a scenario where a HELOC is better because the balance is at $0 for that year and you probably only have some trivial $75/year maintenance fee.

BofA/Citi/Chase/etc have great HELOCs. HELOCs are part of their standard array of banking services, the whole "jack of all trades" thing. 

Local lenders with things words like "mortgage" or "lending" or "funding" right there in the company name, that are well known and have good reputations among local realtors, will be the place to go for a 15 or 30 year fixed. One trick ponies tend to do their one trick very well.