Cash out refinance V.S Home equity loan

[Anil Bajnath]

hey all, i currently have a rental property out in orlando, FL. i’m looking to grow my portfolio and getting another property. my question is, which is the best way to do so. cash out refinance or home equity loan. the house is worth about $150,000 and is already paid off. i am 19 and my credit is “good”.

[Jacob Sampson]

With a cash out refi there may be expenses you have to pay like getting a new appraisal.  Not a big deal but still an expense to be aware of.  Further with a cash out refi you immediately begin to pay interest on your cash even if you don't have it deployed.  The upside is you lock in an interest rate for some number of years.

With the Heloc the interest rate adjusts daily but you don't actually pay any interest until you borrow the money and deploy it. I treat my heloc as a short term loan so I use it more to offer cash on a property then once I own it I turn around and refi it off of my HELOC and into a regular 15 year mortgage. Or I use it for flips but that is a bit more risky as you may not always get enough back to pay off the HELOC.