Accessing More Equity - HELOC Refinance or Cash Out Refinance?

[Brad Ball]

Hi There. This is my first BP Forums Post.

We own a duplex and have lived in one side for 10 years. Only a few months the entire time without a tenant paying a full rent. We bought in 2010 in northern Illinois where the total bottom of the market had not yet arrived. While we definitely didn't purchase it "right" by true investing standards, we paid full price and put 20% down and have raised our family here ever since. Lessons learned, the 20% down ate all our cash and the market value continued to fall for the next several years. A pro forma puts cash flow at about $200/month for the building, but, since we house hacked, we just absorbed that into our regular spending with some regular savings for repairs and maintenance, etc.

Come around to 2020, we (with our tenants help) have paid down 10 years on our 30-year conventional loan, held by Chase. The market has come back up and, between our mortgage balance (about $115,000) and what it should be able to sell for at market price (estimated $190,000), I think we've got about $75,000 in equity in the property. I have an existing HELOC with PNC Bank we set up about 6 months after the property purchase with a $12,000 limit. HELOC rate is between 7-8%. There is no current balance on the HELOC which will reach it's pay down period in the next year or so. I have solid credit and non-mortgage debt (credit card or personal loans) is not an issue.

My question to the BP community: In this situation, to access equity for another investment property purchase, would you rather pursue a cash-out refinance on the first mortgage or a HELOC refinance? I think the HELOC refinance is the way to go but please feel free to convince me otherwise. Thanks in advance for your thoughts.

[Zack Karp]

@Brad Ball welcome to BP!  You should analyze both options.  It depends on your long term goals.  Are you going to be staying in this property long term?  What's more important, monthly cash flow or actual cost?  What is the cash out being used for, and how would that impact the heloc balance over time?  All questions (and more) that need to be answered in order to help you make the right decision.  Your best option is to get with a rockstar LO that has your best interests in mind to help educate you, work through all the different options, so that you can make that choice for yourself effectively.

Best of luck!