Refi Cash-Out vs HELOC?

[Sam Stabler]

I'm in a bit of a conundrum and needed some advice:

I have an Owner Occupied SFR while generating rent from the permitted back-unit ADU. I want to replenish the cash I spent constructing the ADU as I'm looking to purchase another home and rent out the front unit ASAP.

I wanted to do a refi cash-out (approx $70k cash out) but the brokers whom I've spoken to say lenders are requiring 75% LTV. They can lend up to 80% LTV but my rate will increase by almost a full percentage point plus more in closing costs which is a non-starter for me. Although I prefer doing a refi vs a HELOC because the added cash out is termed out over 30 years and has less of an impact on my cash flow, my concern is I'm not sure if my property will appraise high enough to conform to the 75% LTV with the cash out and I dont know how long the process will take (2-3 months?).

My other option is to get a HELOC, which I've been told is a much faster process plus no appraisal. But my concern with the HELOC is that I dont really like the structure. If I pay minimum interest only payments, I dont reduce the principal. And If I do pay down the principal every month, it will eat up more of my cash flow.

What do you guys recommend?