HELOC VS CASH OUT REFI

[Anna Catron]

Working on our 3rd SFR. We're investing in Fort Worth, Texas. Can someone speak to me about which makes more financial sense, a cash out refinance or a HELOC. We're looking to put probably 30k into a property and have approx 60k in equity in our 1st SFR.

Thanks so much!

[Brit F.]

@Anna Catron, it all depends on how you plan to use it. If you plan to buy turnkey or other buy & hold (without rehab), then do the CO-Refi up to the point your numbers still make sense. Or, if you doing either short-term REI or BRRRR, then a HELOC can work.....buuuuuut,

Using a HELOC to acquire more buy & hold property can be tricky. A good way to use a HELOC for acquisition is to consider it like a hard money loan: make a draw on it to fund acquisition of a distressed property, use the HELOC again to fund your rehab, then either sell it or do a CO-Refi and promptly pay off the HELOC.

Avoid any situation where you keep drawing in your HELOC w/o paying it off. It can hurt your credit when it's more than 50% drawn, and you'll be in a pickle when the draw period ends and you have to start paying principal + interest.

Also know that you may have trouble finding a lender to give you a HELOC on investment property that has a lien. Most want the investment property to be debt free before doing the HELOC. But who knows, you might find a willing lender in your area. In contrast, you won't find this limitation when doing a CO-refi.