Should I Refie of Nah!

Question

Hello BP Family!

I just finished the rehab on my first property and I am wondering should I refinance or not. I originally paid $6,000 (3 Beds/1 Bath/SFH) and put roughly $15,000 into it. I am debating on refinancing it, and pulling out between 65% - 85% LTV. The home should reappraise to between $45 - $60K.

The questions I would like help with.

1. Should I refinance and pull out the cash and continue to reinvest in other properties?

or

2. Just rent the home at $900 per month. And look to use these funds to purchase my nest property.

**In both scenarios the home will be getting leasewd. As I plan to hold this property.

Reginald Vaughn · Answer

Thanks Joe! I am just awaiting the seasoning period to end to really start working with these banks. We have had conversation, but have another month to start the process.

Joe Villeneuve · Answer

numbers never lie...and your numbers are so spread out, at this point, they aren't speaking to you...yet.

First, get your numbers licked down for ARV and %ARV to refi out.

Second, rent of 900/month tells me nothing.  What is your cash flow before you refi?

Now, based on picking a number out of the sky (or ...), and using your $21k in cash (I assume cash) cost so far, here is what I would analyze:

1 - Assuming the averages in ARV ($52K) and REFI% (75%), you could get $49k out in a refi...which means getting your original cash back plus an added $28k.

2 - If you cash flow at least <you fill in your minimum POSITIVE CF here> after you take out all expenses, including the mortgage payment, and if my numbers in step #1 are correct, then I'll race you to the bank to refinance.  You started with $21k, ended up with a property dash flowing at $????, with no cash left in the deal put at risk, and more than twice the amount you started with in cash to use moving forward,....what's the holdup?

Joshua D. · Answer

We use our paid for house as collateral on our next purchase...

I can buy a 100k house and get a 100k loan against the property because I am putting up a value of 200K... 2 houses at 100k.  This allows me to leverage the purchase and rehab on the front end and then i Refinance out and get my paid for house back.

All the while i am getting Great cash flow from my haouse and getting

I then do it again...

Reginald Vaughn · Answer

Jassem - That's a wonderful idea. I will look into some home equity products as well.

Reginald Vaughn · Answer

Joshua,

Thanks for your reply! I do have a few banks lined up to complete the refinance. But when you make mention to using the home as "collateral"...., I was thinking of using the cash out to purchase my next property free and clear. Please explain more

Jassem A. · Answer

I'd probably do a HELOC or equity loan rather than a refinance because otherwise there's typically a lot more fees with a refinance.  With a HELOC you can choose how much you want to spend much like a credit card.

Joshua D. · Answer

@Reginald Vaughn

That is quite a range you give in ARV and refinance value. So you will refi out anywhere from $29,000 up to 51,000.  Do you have a bank already lined up to do the refi?

Lots of banks do not like to do conventional loans under 50k. It is harder to sell those loans.

My answer too you question is Neither... I would use the paid for home as collateral on your next purchase that way you are leveraging the asset without having to make any monthly payments. You still get too collect the monthly rent and save up cash.

This is what we do and it works well for us.