Opinion: Cash out or HELOC

[Josh Taylor]

About a year ago my wife and I decided that we were tired of working all the time and want to move more toward financial freedom. We were 115k in debt and not saving alot of money. We also were having our 2nd child and were looking at 1500/mo for daycare. We already owned 2 rentals and wanted to buy more properties but decided to get our personal finances in order. Also, we decided it best for my wife to stay home with our children, which cut our income down by 55k/yr.

In the last year we have successfully paid everything off except our house now, and did buy and remodel another property, which we have rented now. We also will have close to 70k saved up by end of year. We've made some big sacrifices and sold some personal stuff, but we are going to be sitting in a really good position for investing now.

The next step is to refinance our personal mortgage to lower the payment. I am on the fence about either pulling cash out to buy more properties, or just getting a HELOC and using it. We have about 200k in equity in out house which would allow me to pullnout 100k or so. We also have a 100k LOC on some land we own, but its a LOC that has to be zeroed out every 12 mo. We are ready to start buying now, just want advice on best way to use my equity. I know alot of people don't like to pull equity out of personal properties, but I think its my fastest way to get moving on building a portfolio.

[Jeff Grebe]

Heloc gives you the ability to only pay interest on what you have drawn against it vs. a cash out you start paying interest day one.    However, Heloc is typically indexed to Prime which will eventually go up... and then you might wish you had a fixed rate.   I love the flexibility of my heloc and found a local credit union that did prime minus .50.     During the last recession some lenders froze Helocs and wouldn't let you draw additional funds on them.  I had one during that time and never had a problem, but heard of others who did - probably at higher loan to value's.