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Updated almost 8 years ago,
Paying off Properties and Using Equity Line of Credit vs Not
Hi guys, I'm interested continuing my investing using the BRRR strategy. I currently have a duplex that was financed at 4.75%. I've recently began accumulating some substantial amount of cash and I'd like to get some pros and cons to paying off mortgages and using an equity line credit vs not paying off the mortgage, paying interest on the cash at all times.
Scenario-1: Paying off mortgage entirely, and following up by a 75% to 80% equity line of credit
Pros: Not paying interest, stability, significantly increased cash flow. Aside from those, using a HELOC you will then have 80% of equity at hand in cash available to invest on your next property. Paying interest only when you are using the cash(mostly a pro in my opinion)
Cons: You will have slightly less cash available(20% less). You are taking on further risk if market declines- this was risk that the bank was previously owning
Scenario-2: Not paying off mortgage entirely, paying interest, and using your available cash for a new property.
Pros: You will have 20% more available cash than Scenario-1, thereby more purchasing power for your next deal. You will be taking on less risk in case of a downturn as your property will be mostly financed.
Cons: You are essentially paying interest at all times. Not only when you are using the money. That has a significant impact on cash flow(low cash flow). Less financial stability as cash flow will need to be higher for there to be profit.
Please share any thoughts