Will make the long story short here but if you want all the details feel free to read the whole story and number breakdown below!

I have a rental that was purchased in 2020 and the loan is around ~320k. The comps support about a $450-$470k price point. I could finish the basement for potentially $30-40k (maybe less) and the ARV would be somewhere closer to $510-$525k.

What is the best way to tap into that potential ~$100k of equity between a HELOC or Cash our Refi?

Story time!

I am a firm believer in the long term wealth that real estate creates, therefore I am a buy and hold type investor. I have had this rental for 3 years and plan on continuing to have it until the numbers just don't make sense. Right now if I were to cash out refi I would get somewhere around ~$50-70k and change my interest rate from a 2.5% to the going market rate. (Roughly 7-8%) For now it's used as a mid-term rental and the cash flow would support a monthly payment like that but after the mid-term lease is up I'm not confident I would be able to place another mid term tenet and have to resort to long term as it was originally intended and the rents may not support the monthly payment at that time. (Negative cash flow) The home is in a prime location in CO and still has lots of appreciation potential. That said I am contemplating taking out a HELOC and being able to tap into the equity. I'm just not the biggest fan of having to pay more interest on the money borrowed rather than having one monthly payment.... I've done some digging and have found a HELOC company that utilizes a sweeping account and uses the HELOC to pay off the original mortgage and take fist lien position. Meaning I now have a HELOC instead of a mortgage and can tap into the line of credit at any point I want. This is far more intriguing to me and has me at a toss up between the two options.

If you were in this potion where your rental is cash flowing at a 65% Cash on Cash return with a 2.5% interest rate. What would you do?

Cash out refi and pull out the equity and take the higher payment that the long term rents may not support 100% (Mid term lease is up in May) or get a special HELOC that pays off the existing mortgage and allows you to use the line of credit as you see fit (and of course you'd still have a monthly payment at that point since the HELOC is now the mortgage and whatever the difference between the limit and your balance is the available line of credit)

Also, if I finish the basement that could bump up the comps. Getting a larger sum for the HELOC or Cash out Refi.

Any thoughts are much appreciated!