Refinance? but much higher mortgage payment?

4 Replies

Hi BP members,

Last year, I partnered up with my family and bought a $700,000 triplex with a 30-year fixed rate conventional loan. Took a loan of $525,000. I also have a conventional loan on my primary residence. Me and my family are ready to buy a second rental property. We want to do so without tapping into too much of our own cash and re-leverage using equity from the triplex. Let's say the appraised value for the triplex is $800,000, how should we go about financing the second deal? Cash out refinance, line of credit, or HELOC?

If we refinance the whole mortgage and a bank loans us 75% of equity, so ($800,000 - $525,000) * 0.75 = $206,250. I am worried that our cash flow (roughly $1000 on a good month) on our current triplex will not cover the new higher mortgage. I calculated that the new mortgage payment will roughly be $1000, which means the triplex will now only break even even without repairs). Maybe I misunderstood how BRRRR strategy works. How do people do this? What is my option? Any help is appreciated. Thanks!

@Miko Lee I think the calculation works differently ... it should be (800,000*0.75)-525000 =75000 not the 200k that you project

@Avi Garg - thank you for catching my error!!! Let’s say by taking an additional loan on the $75000, my triplex now break even instead of having positive cash flow, is it wise to still refinance/loc/heloc? Trying to figure out how the math works..

If your new debt causes your property to not cashflow, it is not a good idea. That is what we call being "over leveraged" . 

Howdy @Miko Lee

Let’s break this down in three parts.

1.  You say original loan was $525K.  Current Cash Flow is $1K per month with current mortgage payment.

2. New estimated value is $800K. Cash-out Refinance loan amount (LTV 75%) $600K. Cash to you $75K. Not sure how you are getting the new loan payment is $1K more than original loan. Effectively eliminating your Cash Flow. Please explain.

3. Refinancing your current property would not be considered a BRRRR strategy. Using the equity, through a Cash-out Refinance or HELOC, towards the next property would be part of the BRRRR for that new property.

If you are concerned that the Refinance loan will wipe out your Cash Flow you may be better off using a HELOC. Just remember that any future BRRRR deal must be able to payoff your HELOC loan.

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