Cash out refinance for 1st rental property
New to Real Estate · Laredo, TX · Member since 2024 · 1 post · 2 votes
Hi! My husband and I recently took out a cash out loan from our frst home. We are getting about $138,000 and we are looking at different options ex. Single family homes, multi family, condos etc. we are wanting the deal to make sense as far as the total rent of the property to cover the mortgage for the property as well as the $1200 loan payment for the cash out loan. I've being reading the forums and most people are recommending putting in as little as possible (20-25% down) instead of possibly purchasing a whole property "cash " with the $138,000. In my area that would get me a decent condo in a good area. The only properties that are making sense on paper are the multiplex properties but it's the lower priced properties with potentially more issues as far as repairs. Should I just accept that the properties that are probably better options (better areas/newer builds) may just not cash flow enough to cover the payment of my cash out loan and mortgage payment for the rental property we decide to buy?
Hi Sabrina. It may, and it depends on rental income in the area vs the expenses the property will have. If you want to find a new build/better neighborhood that cash flows positively, you need to search for the right deal and buy at the price that makes the deal work for you. A lot of times these deals are not on the open market (MLS, Zillow, etc.). You will need to seek and search for off market deals. Some of the best deals are circumstance (think recent divorces, death in the family, foreclosures, etc.). When searching for this first deal, do not get discourage that you can't find them. You will go through a lot of prospects until you find the right one.
Good luck!
Yes.
In general cheaper properties do appear to pencil out better on paper. But like you mentioned, there will probably be more repairs, and what doesn't show up in the spreadsheet is the headache (evictions, damage, etc) that come with C class or lower properties like cheaper properties tend to be.
With today's interest rates I'm struggling to find deals where the rent will cover PITI plus vacancy, repairs, & capex, and I self manage. I don't think I could find anything if I also had to account for additional loan payment.
To make deals work you could try some combination of fiddling with the down payment number to get the mortgage plus loan payment to a manageable amount, and getting the seller to buy the rate down as much as possible.
I'd also want to keep a chunk of that 138K aside for an emergency fund.
i think you're indicating that you may be financing 100% of the purchase price of a property. "cash out" loans aren't actually cash - they're loans. it's highly unlikely that any property will be able to support all the debt on it based on what you described.
i'd save up more actual cash - your own cash, free and clear. otherwise you're just going to be making the banks rich.
hope this helps
It would be helpful to know what properties actually make sense on paper in order to explain the numbers but here are a few points to consider as you weigh your options:
If I am reading through the lines correctly, you looking to qualify for a DSCR loan, and still maintain enough liquidity to carry it and the additional $1200 payment for the cash out loan as well as whatever else you will need in reserve to maintain the property. It could still be a good investment even if it doesn't cash flow on day one. How to structure the financing is something that needs to be teased out.