Cash out or HELOC on rental property?

[Vlad Maslov]

Hi everyone! What a great community! I am a first time poster newbie real estate investor form Delaware. 

We have one small 2 bed 1 bath rental house that used to be our primary residence, but now we are renting it out. It's worth around $140k(according to zillow) and we own $18k on 10year 3.5% note. Rent is $950, mortgage $512(taxes and insurance included) So, there is a good chunk of equity in that property. Our primary house is a fixer upper that I have been fixing little by little myself and over time that run into 25k credit card debt. I am not paying any interest on that $25k just yet, and recently been able to transfer it to another credit card with 0% APR for another year, didn't pay any transaction fee. Even though I am not paying interest on that $25k, but, just knowing that it is there makes me feel "uncomfortable" and I still need around $10-15k to finish renovation.

In short, goals:

1) pay off $25k credit cards balance

2) get some reserves around $10-15k(for materials) to finish renovation primary

3) if anything left, maybe get some cash for down payment for another rental property 

So I am trying to choose between Cash Out refi vs HELOC

I found two local banks that offer HELOCS on investment property. 70%LTV prime+2%(2.25%), got to pay $500-1500 closing fees.

Same banks offer cash out refi for rental properties: 75%LTV, 5.5-6% 30 year fixed, 3000-4500 closing fees

Seems like, if I go refi I can pull out around $83k ($105k(new loan) - $18k(current mortgage) - $4k(closing fee)=$83k

$83k - $25k(credit cards) - $15k(to finish rehab) = $43k (for next investment).

I am still researching and shopping around for other options, but refi seems to be a better option for right now. 

What would you do/recommend in this situation? Thanks

[Andrew Postell]

@Vlad Maslov two of the common areas of concern for LOCs I see out there is the 10 year maturity date and the adjustable rate. Since most LOCs have adjustable rates they will often catch people off guard when they adjust. With rates moving higher, it is likely that your rate will increase in the future. The 10 year maturity date is where the LOC will modify into a different product all together. Meaning after opening the LOC for 10 years it will cease to be a LOC. It will "mature" into a 20 year fixed rate mortgage that you can no longer draw on. And when is matures the rate will increase. I've seen typical numbers of 1%-2% higher than your current rate.

If you are looking to keep this property for a long time then go with a fixed rate.  That's the smarter move on long term outlooks.