Cash out refinance or save?

6 Replies

I am looking for some guidance on what my next move should be. I'll list my goals and what my small real estate portfolio looks like and my hope is you all can throw some ideas out there to help me reach my goals sooner rather than later overall goal - I am 36 and would like to fully retire by 55 - want to cash flow minimum 10k from rentals by the time I retire - would like to purchase my forever home within 5 years. I am located in northern california. - I'd like to leave my 9-5 job and focus on REI full time - I'd love to also purchase properties to flip as well current situation - own 2 investment properties, total 3 units - i have roughly 400k in equity including my primary home - I did a cash out refinance on 2 properties last year to help buy the third. like I mentioned above I am just trying to figure out my next move to help me get closer to my goals. thank you in advance.

@Yesenia Padilla , your "save" option should happen in any case! (No brainer!)

I don't really see a question here, because you've already been carrying out the answer. Congrats on your progress so far. (Some of which needed your "refinance" option, right?)

And I shouldn't even need to remind you: only buy bargains!

ie. From 2018 onwards, don't rely on never-ending/uninterrupted appreciation! All the best...

@Brent Coombs thank you for your reply. sorry what i meant is to save for a down payment or cash out refinance again. I feel the smart answer is saving for the down payment but that could be at least 5 years unless I can come up with the funds sooner by finding a property to flip. i just dont want to make the wrong decision and regret it down the road.

@Yesenia Padilla , and what I meant is: start/keep saving anyway! (The movie "Shawshank Redemption" comes to mind, when Andy asks for a rock hammer). Cheers...

The smart answer is actually refinancing when you are growing. Your dead equity is going to waste. You are only saving the prevailing mortggae interest rate when you should be reinvesting and earning 10% or better ROI.

$400K in dead equity is worth $3332/month in investment income. If you are saving 5% in interest you are losing out on a easy $1666/month in opportunity value.

To grow at a respectable rate leverage is the best partner to have.

Take Brent's warning in regards to appreciation as well. If th eequity is now in high appreciation properties that can not cash flow with 100% financing I would advise you sell and reinvest in cash flow only properties. Nothing is forever.

I can't/won't tell you what you should do, but I'm still trying to grow too. I recently purchased property that I believe I could 1031 or cash out refinance in a year or so. 

I'm leaning towards cash out refinance for this property because I really like them so far. My last property I did a 1031 to buy these and don't regret it a bit. 

But long story short, I mostly agree w/ @Thomas S. My need for expansion drives the need to leverage. Just don't leverage more than you're comfortable with. Which to me, means I'm still cash flowing ok after all expenses, cap-x, etc. 

thank you @Thomas S. and @Dustin Beam . i agree first step is i need to figure out exactly how much cash flow i am ok with  after expenses and then i will know how much to take out of the properties. 

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