How much equity do you leave in when you refinance?

Question

I bought a SFH for $56.5k, used my HELOC for the purchase and then paid $40k towards the draw so I have a balance of $15,781 on my HELOC at 3.25%.

Right now my cashflow is $299/mo and an 8.4% CoC.

When I refi in 6 mo, after an ARV of $82.5k, I can leave in 30% equity, cash out $40.2k and leave $2.7k invested. That would only cashflow $96/mo

Or

I could leave in 50% equity, cash out $23.7k, leave $19.2k invested and cashflow $165/mo

What’s the best way to look at this?

Thanks!

Ashley Cross · Answer

If you are able to cash flow and take advantage of historically low rates I would do that. As long as you are utilizing the cash to invest in other cash flowing properties I believe it’s a win win. Also, you’ll definitely be able to raise rents and increase your cash flow but that mortgage payment will be fixed. Unless your at the point in your investing career where you no longer want to acquire.

Joe Splitrock · Answer

I think Turner would say maximize cash out AND have over $200 per door. As long as you have cash reserves, lower cash flow is ok if you are maximizing COC return.

Kerry Baird · Answer

Look for lenders early. That is a small balance mortgage, not the point of your question, but it will be harder to find a lender for small loan balances. Look for credit unions and community banks near the property.

Jon Campbell · Answer

@Joe Splitrock, the other way to look at it is the other scenario and my original question of how much equity to leave in when refinancing. The general rule of thumb, or at least B. Turners metric is $200/door when it comes to SFH. Do I go for a higher cashflow or pull out the initial cash invested, or split the difference somewhere. Thank you for your question and time considering my question.

Joe Splitrock · Answer

If you leave $2700 in the deal that works out to 42.6% COC return. What other way is there to look at this?

How much equity do you leave in when you refinance?

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