Cash Out or Line of Credit?

[Gil Vaisman]

Hello Biggerpockets!

I want to start flipping houses in the near future and I'm not sure on how I should finance my future deals. 

I own an investment property without a mortgage. I can easily apply for a conventional mortgage loan, get 80% of the assessed value of the property and start working with that capital. The other option is to obtain a HELOC through Wells Fargo (any other banks that offer HELOCs on rental properties?), get 60% of the assessed value and use it at my convenience.

My idea is to start growing the money that I have available through flips and eventually purchase more income property. The way I see it:

HELOC:

PROS:

• Don't use it, don't pay - great for flips

CONS:

• Variable APR that will go up in time
• Can be recalled/changed if Wells Fargo decides
• If I want to purchase a hold property I would have to look for another loan
• Smaller amount than loan
• Harder to obtain - not a lot of lenders

Loan: 

PROS: 

• Fixed rate that will be below market value in a few years
• Can easily purchase another property without a new loan.
• No loan recall or change of terms
• Principal loan reduction with time
• Lots of lenders

CONS: 

• Don't use it, still paying - higher holding costs

What can you recommend? Am I missing something? Appreciate the advice.