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Disclaimer: I am not a lawyer, please contact a lawyer to find out where I'm wrong.

One reason I see to take cash out of rental property is to reduce risk. Given the appropriate situation someone can put the property in a corporation (LLC or otherwise), remove the equity, and if sued, the corporation has assets with no or minimal value. However, to avoid being sucessfully personally sued, they cannot manage the property themself, and must hire an appropriate professional manager/management company. This management company, which a absentee landlord probably needs anyway raises costs.

Second, is what is being proposed really an interest rate bet? Generally at any specific time and at the same risk level it is more expensive to borrow then lend, so either the interest rate difference must be eaten, risk increased, or there is a gamble that interest rates will increase.

Third, my HELOC's set their interest rate when the money is taken out, not when the unfunded loan was established. At the time I take the money out of the HELOC, the loan will be at the current interest rate.

While in CA transferring a property from your name to a trust is not a "sale", transferring it to a LLC is and does trigger the due-on-sale clause. However, I've heard the mortgage company generally finds out when the insurance changes or if you're caught in a random audit. I've also heard that some mortgage companies don't care (until they want to) if you're current because they have a lot more to worry about than someone who is current. Also, homeowners, renters, and landlords insurance are all different, different costs and coverages. I suspect if someone files a claim on a rental and has a homeowners policy, they will be very unhappy.

My 2 cents, I hope this was helpful, check with your lawyer.

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