NEW: BP Podcast 66: Flips, Apartments, & Protecting Yourself From Professional Tenants with Michael Blank

Hide this

From the BiggerPockets Blog

 BiggerPockets Blog »

Jump to Forum View All

Click a category below to view different forum categories.

BiggerPockets

General Info

BiggerPockets Q&A, Site Questions, & Announcements

1516 topics, 14408 posts — Last Post 04/19/14, 07:47PM

BiggerPockets Exclusive PRO Area

117 topics, 839 posts — Last Post 04/18/14, 05:47AM

New Member Introductions

10896 topics, 85717 posts — Last Post 04/19/14, 10:05PM

Real Estate Success Stories

396 topics, 6161 posts — Last Post 04/19/14, 05:20PM

General Real Estate

General Real Estate

Buying & Selling Real Estate

5942 topics, 46823 posts — Last Post 04/19/14, 10:27PM

Renters

643 topics, 5817 posts — Last Post 04/19/14, 09:29AM

Get Foreclosure Help - Help Stop Foreclosure Forum

316 topics, 2557 posts — Last Post 04/16/14, 03:58AM

Home Owner Association (HOA) Issues & Problems Forum

237 topics, 1609 posts — Last Post 04/17/14, 08:53AM

Do it Yourself

655 topics, 6269 posts — Last Post 04/19/14, 09:02PM

Reviews & Feedback

Real Estate Deal Analysis and Advice

3683 topics, 29527 posts — Last Post 04/19/14, 09:57PM

Real Estate Guru, Book & Course Reviews and Discussions

1133 topics, 11562 posts — Last Post 04/19/14, 12:17PM

Ask About A Real Estate Company

741 topics, 7323 posts — Last Post 04/19/14, 10:36PM

Real Estate Investing

Real Estate Strategies

Wholesaling

5605 topics, 43750 posts — Last Post 04/19/14, 10:03PM

Rehabbing and House Flipping

3334 topics, 31004 posts — Last Post 04/19/14, 06:45PM

Real Estate Development & New Home Construction

553 topics, 4685 posts — Last Post 04/19/14, 06:13PM

Innovative Strategies

703 topics, 6027 posts — Last Post 04/18/14, 08:48AM

Tax Liens, Notes, Paper, & Cash Flows Discussion

866 topics, 6678 posts — Last Post 04/19/14, 06:06AM

Rent to Own a.k.a. Lease Purchase, Lease Options

693 topics, 4902 posts — Last Post 04/19/14, 04:53PM

1031 Exchanges

143 topics, 1054 posts — Last Post 04/18/14, 08:41AM

Foreclosure Investing

General Foreclosure & Pre-Foreclosure Forums

1687 topics, 11290 posts — Last Post 04/19/14, 09:17PM

HUD, VA, and Tax Sales

415 topics, 3097 posts — Last Post 04/19/14, 10:19PM

REOs

1214 topics, 10577 posts — Last Post 04/19/14, 07:22PM

Short Sales

1534 topics, 13120 posts — Last Post 04/17/14, 04:44PM

Landlord & Tenant Forums

Landlord & Rental Property Questions

7207 topics, 70775 posts — Last Post 04/19/14, 07:50PM

Mobile Homes & Mobile Home Park Investing

638 topics, 5141 posts — Last Post 04/19/14, 09:49AM

Investor Basics

Starting Out

7706 topics, 60497 posts — Last Post 04/19/14, 09:40PM

Investor Psychology

431 topics, 6104 posts — Last Post 04/18/14, 06:08PM

General Real Estate Investing

4718 topics, 37214 posts — Last Post 04/19/14, 08:08PM

Real Estate Investor Marketing

1731 topics, 14094 posts — Last Post 04/19/14, 06:39AM

Commercial Real Estate

Commercial Real Estate Investing Forum

1410 topics, 8994 posts — Last Post 04/19/14, 04:34PM

Multi-Family and Apartment Investing

1109 topics, 9239 posts — Last Post 04/19/14, 07:12PM

The Business of Real Estate

Real Estate Technology and the Internet

Real Estate Technology, Social Media & Blogging

641 topics, 4895 posts — Last Post 04/19/14, 09:33PM

Business Basics

Goals, Business Plans & Entities

831 topics, 7562 posts — Last Post 04/18/14, 04:25PM

Real Estate Finance & Legal

Financial, Tax, and Legal

Tax, Legal Issues, Contracts, Self-Directed IRA

2786 topics, 20018 posts — Last Post 04/19/14, 08:17PM

Property Insurance

309 topics, 2045 posts — Last Post 04/17/14, 07:41PM

Personal Finance Discussion

328 topics, 2732 posts — Last Post 04/19/14, 06:57PM

Loans, Mortgages, Credit Lines

Private & Conventional Lending Discussion

2834 topics, 19702 posts — Last Post 04/19/14, 06:39PM

Creative Real Estate Financing

1210 topics, 8771 posts — Last Post 04/19/14, 08:28PM

Crowdfunding Real Estate

35 topics, 463 posts — Last Post 04/19/14, 06:24PM

Real Estate Professionals

Real Estate Professionals

Real Estate Agents

1211 topics, 7995 posts — Last Post 04/19/14, 08:09PM

Bankers, Lenders, and Mortgage Brokers

442 topics, 1924 posts — Last Post 04/19/14, 07:27PM

Contractors

269 topics, 1679 posts — Last Post 04/19/14, 09:28PM

Local Real Estate

Local Real Estate

Local Real Estate Networking & Recommendations

1990 topics, 11614 posts — Last Post 04/19/14, 07:40PM

Americans & International Real Estate

161 topics, 566 posts — Last Post 04/14/14, 11:19AM

Foreigners Buying in the USA

62 topics, 409 posts — Last Post 04/10/14, 06:27AM

Canadian Real Estate

64 topics, 428 posts — Last Post 04/18/14, 04:22AM

Marketplace

Real Estate Marketplace

Real Estate Marketplace

15020 topics, 53960 posts — Last Post 04/19/14, 07:37PM

Real Estate Events and Happenings

164 topics, 2515 posts — Last Post 04/19/14, 07:29PM

Off-Topic

Off Topic

Off-Topic

2905 topics, 32411 posts — Last Post 04/19/14, 08:03AM

Housing News & Real Estate Market

914 topics, 8351 posts — Last Post 04/17/14, 08:41AM

BiggerPockets Real Estate Investing Summit

97 topics, 1751 posts — Last Post 04/10/14, 02:27PM

BiggerPockets Resources

Forums » Creative Real Estate Financing » Refinance w/ cash out to pay off debt and purchase income property

Refinance w/ cash out to pay off debt and purchase income property

5 posts by 3 users

Signup

· Moorpark, California


I am new to real estate investing but eager to learn. I am in the process of refinancing my current 30 yr mortgage to reduce my monthly payment. We determined we will save almost 200 dollars per month but will extend the current 27 year loan back to 30 years and add 70k to the balance Throughout the process. Recently we have become more interested in pulling cash out (70k) which would pay off our cc debts,2 car payments, and provide 45K to put down on our rental property..We have 50% equity in our occupied house. My concern is... Would it be worth it to pay for the 3% auto loans and 0% balance transferred cc's to free up cash for this new home?



· Moorpark, California


The new interest rate on the refi is 3.5% over 30 years



SFR Investor · Wheat Ridge, Colorado


Is it worth converting 5 +/- year car loans into 30 year loans? Uh, no. Same for credit cards. You're falling into the trap of using your house as an ATM. Lots of folks did that during the bubble. Now they're underwater and hurting. The real danger here is now that you have no car loan you start thinking you'll trade that free and clear car for a new one. Or that you'll start charging some more stuff on those zero-balance credit cards. I strongly recommend Dave Ramsey's "Total Money Makeover" to give you a different perspective on this choice. I don't agree with everything he says, but its an enlightening read if you're even thinking of doing what you propose.

Is it worth taking cash from your primary residence and using that to invest in rentals? That's a much, much tougher question. IMHO, this is not a good idea. You're putting your residence at risk to start investing. Better, IMHO, to get your financial house in order so you can start accumulating cash to use for investments. That may take time, but you have much less risk.

IMHO, a residence is just an expensive doodad like a boat or car. You don't want to be mortgaged on an expensive doodad. You want to own those outright. So, a residence should be something you own free and clear. If its free and clear, you can never be kicked out if you lose your job or suffer some major financial setback. If its mortgaged to the hilt, this is a real possibility, as many folks have discovered.

Others consider this as having a lot of "trapped equity". My response would be not to buy such expensive doodads. Live in a cheaper house. Drive a cheaper car. But be that as it may, you may want to read their opinions. There was a long discussion about this a few months back:
http://www.biggerpockets.com/forums/48/topics/74978-to-pay-or-not-to-pay-off-your-primary-residence


Jon Holdman, Flying Phoenix LLC


Real Estate Investor · Anchorage, Alaska


Of course you should take the cash out. Borrow against a property with a 3.5% rate to re-invest it for an ROI of 10, 20, or 40%.

I would only pay off the 0% credit cards and 3% car loan if that helps with your ratios or FICO score in qualifying for the new cash out refinance loan.

To be "afraid" to use "good debt" - like Suze Orman or Dave Ramsey are - would come at a significant opportunity cost for you and your family.

When rates are this low, I cannot understand why paying off a home is a priority for anyone. To have funds invested in a side account where one could pay off their home if they wanted to (but why would they?) is more desirable. This way, your money is both liquid and has a rate of return - home equity fails both of these tests.

Do you want to live below your means? Or make informed choices to expand your means?



· Moorpark, California


I need some advice...
We are expecting a baby in february 2013 and we both work full time careers. My wife has the idea to pay off debts ($26000) so we will have more money available to put in savings each month and to pay for daycare if needed . I think that sounds great, but rolling 5 years worth of auto payments and some cc debt in to a 30 year mortgage doesn't make the most sense to me.... Recently we started the process of doing a refinance to get a better rate and save almost $200 per month. The loan is going from 4.75% @27 years to 3.25% back to 30 yrs. We have approximately 26,000 in debts which includes 2 auto loans at 3% each with 5 years left, and $4500 in credit card debt. Currently we have approximately $50,000 equity in the house. If we took out the money to pay the debts we would save $530 from our debts and $200 from reducing our rate totaling $730 more in our savings each month. If we take out just enough to reduce rate our payment would be $1231 and we would keep our debts at $530 per month or $6360 per year. If we take out an additional $26000 our payment would be $1377 and our only debt would be our mortgage. Any advice?





Sign up