Cash Out Refi vs. HELOC Pros and Cons

[Tyler Maten]

*Disclaimer* I know things may depend on a variety of different factors, just looking for people's thoughts / experiences.

- Hello BiggerPockets crew!! I have kind of hypothetical question, possibly a couple questions that I would love to hear some different opinions on. I'm located in Dallas, Texas if that matters any.

- If I have a home worth 200k, it's owned free and clear. I currently occupy the home. I want to pull cash out of the home to buy a rental property, and also maybe use some of the cash to get into a fixer upper, flip. Would it be best to get a HELOC or do a cash out refinance?

- What are some Pros and Cons of each?

- To get a HELOC does the home have to be in your personal name or can it be in a LLC?

[John Warren]

@Tyler Maten I have personally used both tools. The cash out refinance is nice because you lock in your payment for 30 years. The down side is that you may be holding the cash while you look for another property, and your LTV is not as high as a HELOC would give you.

The HELOC is great because you don't pay for it until you use it. It acts more like a credit card for the first few years as all you do is pay interest. The down side to the HELOC is that the interest rates are higher and the amortization is shorter once you are done with any interest only period.

My personal favorite strategy is to do both! I recently completed both types of loans and used the equity to buy a building in Cicero, which is a C class area by me. This has worked out very well!