Cash out refi? What would you do. Got a scenario....

8 Replies

Here is the story. I own 2 investment properties in NJ. One is generally new (i used a heloc on my primary for the downpayment.), and the another i bought in 2011 for 335k have a 15 year fixed at 3.375, and the property is valued now at 465k. 

Im itching to buy a 3rd. My only real option (that at least i've come up with) is to do a cash out refi on the 2011 property, converting my 15 year @ 3.375 into a 30yr  @ 4.5, and taking out approx 115k to finance the 3rd property. 

Would you do it or just hold off?

Pro:

- Obtain a 3rd property

- Possible appreciation

Con:

- Losing a 15yr fixed @3.375 for a 30yr @4.5. My payments will stay about the same.

- Depreciation due to rates: Rates are eventually going to go up, what will that due to home values?

Welcome thoughts and views.

If you are in acquisition mode, leveraging to get another property sounds good.

@Justin Palamara first, thats awesome your property has built over 100k equity within 4 years.  In your current situation, I'm not sure if I would refi to a 30 year mortgage.  Basically, you will be sacrificing 15 years to acquire 1 more property.  Too me that trade off isn't worth it.  However, if you were going to refi and buy several properties I would reconsider doing the cash out refi and extend to 30 years.  

The more I think about it I'm not sure.  Interest rates are still very low.  It probably makes more sense to use leverage while money is cheap to keep buying.  I guess it all depends on what your goals are.  Sorry I couldn't help more haha.

Originally posted by @Christian Bors :

@Justin Palamara first, thats awesome your property has built over 100k equity within 4 years.  In your current situation, I'm not sure if I would refi to a 30 year mortgage.  Basically, you will be sacrificing 15 years to acquire 1 more property.  Too me that trade off isn't worth it.  

Of course it's worth it.  So what if he pays the property off in 15 years instead of 30.  He could have a lot more than one more property, with cash flow coming in, than one property with a lof of equity, that may be worth nothing in 15 years.  let's see.  Within the last 15 years, can we remember an event that backs up what I just said.

@Justin Palamara  

Cashing out on one property to purchase another property is a great way to reinvest. The rate is still very low. You can pull out 75% of the LTV on an investment property SFR and 70% on a duplex. I am assuming this is a SFR. Keep in mind as well that there are always reserve requirements in addition to down payments.

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@Joe Villeneuve I think you make a good point.  I love the idea of acquiring multiple properties with cash refi's and then use the cash flow to snow ball your debt.  I think it depends on what you are trying to achieve and how you plan on achieving those goals. 

Thanks all. Good dialogue. My goal is to have a steady stream of cash flow over the next 15+ years and then continue to have a steady stream of income into retirement (either through rent or selling 1 or more properties). @Christian Bors  I like the idea of snowballing the cash-flow giving me the option of using that cash-flow elsewhere or accelerating the pay down of the existing mortgages (although i am getting quoted 3.875 on a 30 yr fixed now) thus money is still cheap. @Joe Villeneuve ...you also make a good point about diversifying risk (don't keep all the eggs in one basket).

On the risk side:

- Property depreciation

- Vacancies

- General maint / upkeep required to keep the properties rentable

Obviously no risk, no reward. Feeling with rates on the rise and property values continuing to appreciate in the near term, if i don't jump now the window will close before end of year....so....what would you guys do?

@Justin Palamara I'm all for reinvesting your capital into other projects. If you can acquire more than one property at the price point that makes sense for you, go for it! I'm also big on using the cash flow to pay down debt as @Christian Bors mentioned. My other suggestion would be to broaden your target market to optimize your dollar: capturing as many deals as possible. Some of your secondary and tertiary markets still have really good opportunities!

thanks for all the feedback. I acutallu sold the place thru a 1031 and bought 2 new properties. Thrilled with the move!

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