Hey BiggerPockets

So currently have a decent chunk of equity in my rental.  It has a good tenant in there currently and is cash flowing about $300 a month.  

I asked and if I refinanced I would have a worse rate and add about 10 years to the loan...but....lower my month payment by $200 or so.

Would you? Am I dumb for thinking about doing it?  What are your thoughts?

@Joe M.   What are you going to do with the money?  If you are going to make more money then it may make sense.  Do you have debts to pay off?

Are you looking to tap into the equity with a cash-out refi or just looking to get the extra $200/month? How many years are left on the current loan? If you're not trying to use the equity towards more investments, then I would probably not refi unless you really need the extra $200/month. However, if you intend to use the equity and your tenant is paying the mortgage anyway, then I probably would.

Really appreciate the replies.

So I have roughly 20 years left on the mortgage.  I guess I dont see the downside of doing it so its why Im reaching out.

Basically everything stays the same, except extending a loan by 10 years, and the property will cashflow a decent amount better

Any reasons behind your thoughts? trying to understand the pros and cons

@Chris Szepessy @Fred Shatzoff

Any thoughts guys to your point of view?

thanks in advance

Originally posted by @Joe M. :

Hey BiggerPockets

So currently have a decent chunk of equity in my rental.  It has a good tenant in there currently and is cash flowing about $300 a month.  

I asked and if I refinanced I would have a worse rate and add about 10 years to the loan...but....lower my month payment by $200 or so.

Would you? Am I dumb for thinking about doing it?  What are your thoughts?

 It's all math.

How long are you going to hold the property?  What's it going to cost to refinance?  Do the savings outweigh the cost?  If yes, refinance.  If no, sit tight.

Stephanie

It depends on how much equity you have and what you intend to use it for. Many investors with equity sitting dead in their properties do not realise that the equity is actually buying cash flow at a rate equal to the existing mortgage interest rate. Rather pathetic. That is a waste in my opinion as I expect a far greater return on my cash. I would never consider investing for that low of a return.

Another aspect to consider is that once your equity grows to a certain point it is generating the entire return and the property is contributing nothing. Those investors would be better off selling and investing in a income fund. Less work, no repairs and no tenants to deal with. Makes no scenes for them to hold brick and mortar real estate at all.

My question about years left on current mortgage was geared more towards your risk tolerance and goals. Some people enjoy having paid off rentals, others don't mind having highly leveraged properties. If you only had 10 years (or less) left on the current note and you were a few years from retirement, it might be nice to just have it paid off and enjoy the cash flow. If you're younger and/or are looking to grow your business, then refinancing and investing the extra cash would be the way to go. Like @Stephanie P. said, it's all in the math.

If the only reason you are doing it is to cash flow more on the property, do NOT do it.  It isn't worth the cost.  Run your numbers through a mortgage calculator and figure out aside from the cost of refinancing, how much more you will pay in interest over the term of the loan.

Really appreciate the responses.  Thank you everyone

Check out “recast” instead of “refinance” if all you want is more cashflow.

@Michael P. Ill check it out. thanks