Cash out refinancing, wait longer for more equity gains?

Question

I have on average about 130K in equity sitting in each of my properties, some a little more. Many of them are only 2-3 years old to me (as in I've only had them a few years) and much of the equity is from appreciation. I'm looking at a 70% LTV to cash out refinance and reinvest the proceeds but is it worth it yet?

What I'd get in terms of cash would be:

Property 1: 20K (held 1.5 years so far).

Property 2: 91K (held 6 years so far, paid cash so it's paid off).

Property 3: 48K (held 3.5 years so far).

Property 4: 50K (just bought, would add closets to some rooms and cash out refi 80% LTV.

I have 100K in the bank to invest and save about 70K a year. My method to date has been buying a house about every 1.5 years. It is a bit slow, I'll admit, but seeing returns in real estate I'm thinking of accelerating returns by using the cash out refi to buy more property. If I cash out now I'll have about 300K to invest.

OR would a HELOC be better in the short term? Would I still need to keep 80% LTV? Or do they loan on all of the equity? Perhaps I'd be better off letting it season for another year...and just use cash on hand now to buy one more house then a couple more next year.

Jack B. · Answer

Negative, no portfolio lender yet. Open to recommendations or I can ask my conventional broker... :-)

Yeah, the right deal is a good point. It's been ridiculously difficult finding cash flowing properties the last few years in the Seattle area. I have found a few deals here and there, but may have to go back to buying foreclosures and short sales.

Bryan O. · Answer

Hi @Jack B. Do you already have the portfolio lender you are planning to use? If so, ask them for a line of credit for the amount that you planned to utilize. Let them know you plan to buy the property once you find it, then do the blanket loan to pay the LoC off. If they are on-board, you win. You don't have extra cash lying around doing nothing but you're also ready to move with cash purchases if the right deal comes along.

Jack B. · Answer

Perhaps I need to just flip the houses with the lowest possible transaction costs. I would avoid a lot of capex as well this way. I figure if I use the MLS4Owners instead of hiring a listing agent, and negotiate that the sellers pay the buyers agent commission (why should I have to pay for their hand holding needs?) it is after all a sellers market here with very low inventory.

Jack B. · Answer

I have use for the money in that I'd like to expand my rental portfolio. I already own four houses though only three have mortgages, so I should qualify for relatively easy financing with my one more house at least with the same lender. I will say my last house that I just rented out won't show on my tax return for a year though it is cash flow positive even if they only count 70% of the rental income. Maybe I need to talk to my broker and see whether my DTI ratio will support another house right now. I may only qualify for a smaller house in Tacoma for 175K rather than a 400K+ in Seattle.

Steve Vaughan · Answer

@Jack B. you are doing awesome!  Congrats!

Do you have a good use for the capital you have on hand now?  I'm kind of in the same boat. What would I do with a liquidity event?  Just add it to the pile?  Until I find a good reason to deploy capital, I'm being patient.

A line of credit might not be a bad idea if that's an option for you.  Would be able to take advantage of an opportunity much quicker than starting a refi when it arises.  Unless I had a specific purpose for the money I don't think I'd refi just for the heck of it.  Congrats again!