Refinance a Buy and Hold

[Russell Dancer]

I am in the process of refinancing my first rental we rehabbed. Closing cost, inspections etc. are between 2k and 3k, should these numbers deter me from doing this. Should I just look at these as expenses or just ignore them as it is just the way the business is. I'm keeping this property for long term hold and will cash flow the same, just have less equity. I do not really hear anyone discussing these numbers.

Thanks 

[Xavier G.]

Russell Dancer

You will have to take these numbers into account. Technically, refinancing will cost you more money because of closing costs and interests to be paid for a longer period.

People refinance to get the cash out of the property to buy another one with the idea that they will make more money with that new property than what it cost them to refinance.

If you are not going to do anything with that money, don't refinance.

If you are going to buy a new property, it would make more sense to apply the costs to your old property as the loan will be on it. It will show lower "cash on cash return" because of the closing costs and increased loan payments and your cash flow will decrease (and it will definitely decrease after 4 years when compared to your current situation). The numbers on the new property will look better for cash flow since you already have the money to invest, until you decide to refinance this one too!

Hope this makes sense!