Cash Out Refi or leave the equity in for a Heloc?

Question

I’m going into my first refi and I can’t decide between whether to take out as much cash as possible, so I can be cash heavy into this pending crash (allegedly), or if i should leave the equity in there, bump my cashflow every month by about 40% (I’m going from a 7.5% interest loan to a 3.2%), and then use that equity for a Heloc to do the next deal.

Shane Wolf · Answer

Your call on how you want to move forward, each person has their own strategy they need to be comfortable with.

Also think about if you want to use the equity in the property you have to pay to get it back out. If you are worried about the doom and gloom, build a bigger reserve to carry you through.

Daniel Porter · Answer

i do see the logic in that, but assuming tenants will pay down a mortgage is a pretty big assumption, especially considering the new environment were in. paying it down sooner minimizes the window of time that a risk of vacancy could ruin it. think about it, what if the cdc extends the moratorium to June 2021? or Jan 2022? what if another strain hits the world next year? those could be/are big assumptions, equivalent to "what if an asteroid destroys the planet?" type scenarios, but, even all those crazy assumptions can be mitigated by simply paying off the mortgage. and not only that, but paying off the mortgage increases the free cashflow substantionally (no more monthly debt service), and you still have all that equity available for a Heloc. i know its not a popular strategy, but i think its becoming much more viable considering the circumstances.

Shane Wolf · Answer

Would come down to math for me. How much can you get with a cash out refinance for what cost vs how much can you get for a heloc after a normal refinance is done. When I just did it for my situation the standard refinance with heloc later was better.

As for paying off your mortgages quickly, there isn't good reason to do so. Secure the low interest rate and let your tenants pay it off. Use the extra money you would have been paying down the loan with on investments (whether it be more properties or other avenues) to get a bigger gain.

Daniel Porter · Answer

@Daniel Porter

Sorry, accidentally posted before i was done...

Does anyone have any experience with this? I’m honestly leaning towards not scaling as aggressively and trying to pay these houses off faster so I can own them free and clear.