Cash out refi vs refi w/ LOC

[Jon K.]

I'm about to refinance out of a HML on a BRRRR deal and am weighing two options. I'm hoping to solicit opinions on the pros/cons of each. Option 1 is to do a cash out refi for 75%. Option 2 is to refinance just to pay off the HML (60%) and access the other 15% through a LOC.

My short term (5ish years) goal is to focus on increasing cash flow so option 2 seems to win there provided I don't keep a balance on the LOC. I currently have plenty of credit and capital to continue to finance more deals but intend to use this LOC to finance more as well if I go that route and I manage to get the deal flow to do so. Option 2 also theoretically helps with my debt to income ratio though I have no issues there at the moment either.

Cons of option 2 include the fact that the LOC is a variable rate and will likely go up in the future as well as the fact that the bank could chose to close the draw period at any time. I'm also paying closing costs on 2 loans instead of 1.

Option 1 is of course more simple and locks in these crazy low rates for 30 years for the entire 75%.

The property will cash flow really well either way. Hoping folks have thoughts to help me choose between these two good options.