Should I open a HELOC or pay off my house

[Robert Rodriguez]

Few years ago my wife and I made the decision to pay off our rental property. Not my thoughts but hers, she just felt more comfortable/less pressure knowing we didn't have 3 mortgages due (our own and two rentals). Of course i thought, use the money to get more properties but i listened.

Well here i am $17k away from paying off one of the rentals and a contractor friend comes to me and says, he has money but is tired of just doing contracting for investors. I want to have my money do stuff for me too. I know he knows all the ends and out of construction just not the real estate side. So, he wants to partner with me and flip some houses on the side.

i think it's a great opportunity and as i look for financing start to think. Should I finish paying off my rental (last $17k maybe take two months). Or should I open a HELOC on the property and use that money to buy a house cash. Pay back the HELOC as we fix. Then when we sell it pay the HELOC off. Then repeat.

Or if we need a buy and hold exit strategy. Use the HELOC to buy the house cash, rehab it. Put renters in that can pay my HELOC. Then when favorable interest rates come around again, Refinance and pay off the HELOC ... Then look for another property.

the other alternative would be finish paying off the rental. Realize i reached my goal. Then take out a hard money loan to purchase the next property. If normal financing won't lend based on condition of the house.

If i owe $17k and my house is worth $400. Will HELOC let me get it for that much? Or is it a percentage of the home value? Do they allow HELOC to be in the hundreds of thousands anymore? If i pay off the rental will i be able to get a HELOC then? Or is it easier if I'm still carrying a mortgage?

[Joaquin Camarasa]

HELOC's typically will be for 70 - 90% of the total house value with a variable interest rate.

As for the strategy to use, much better to pull a HELOC than hard money loans. HELOC's will allow you to pay interest only of the total loan amount for a certain period of time, in case things don't go as planned, it is a good option.

If you are paying property and renovation cash, your total payment will be high I am not sure you will be able to cover it by renting to tenants in Northern Virginia. (I see you are in Woodbridge, so I assumed property is there) You would really need to get a property with a steep discount, not common.

If paying cash for property and renovations, probably your best bet is too sell it after the renovation. 

Keep it mind we are not going to see the same appreciation we have seen in the last years, if they keep raising rates, there might be a little softening in prices. However, if they lower rates in a few months it might be a good option to buy now and sell in the spring.

Impossible to know what is going to happen. Chat with wife and decide the risk tolerance you both have.