Always REFI for the MOST you possibly can?

Question

Is it a good idea to always refinance for the most you possibly can? On one hand it's great because if you REFI for say 20k more than you paid on an investment property, that's a quick 20k "dividend" so to speak on the investment. 
On the other hand though, that "dividend" really is inflating your mortgage payments which cuts into your cashflow right?

I would think it's always worth getting more because you can reinvest it elsewhere for more than 5% right?

Eric C. · Answer

It is a hit to your FICO score to borrow more? I didn't realize that. I would've thought borrowing more and making the payments = better score.

Good points by the way.

Jeff S. · Answer

It’s not a “dividend” and should not be looked at as a profit, Eric C..  This is money that must be repaid.

Greater leverage means greater risk.  If you have an immediate use for the money that will earn more than the money costs (including all taxes and other expenses), then it might make sense to borrow it.

To incur the costs of borrowing, including a potential hit to your FICO score, if applicable, might not be worth it if it’s just going to sit around and not provide a return.

Are you certain you can always “reinvest it elsewhere for more than 5%” and make a positive return?  What if you can't?  Can you afford the payments?

Mike H. · Answer

I think you answered your own question. I'd rather have as much cash as possible at today's rates.  Although I do like each deal to cash flow a minimum amount.

But what if you could use that 20k to buy a second house with a conventional loan instead of a rehab loan and you get to save the hard money lender fees and the refi closing costs?

Which is better: 2 houses with 80k loans apiece?
Or one house with 100k loan and the other with a 50k loan (20k you pull out plus the 10k in HML fees and refi closing costs)?

Your total mortgage amount is 160k on the first option and only 150k on the second. Doesn't matter whether technically one house is cash flowing less or more. The two houses together are cash flowing about $50 a month more by getting the 20k and using it to buy house #2.

The other piece to that is that you may still buy both houses the same and owe 100k and 80k which means you're paying $100 a month or so more by taking the extra 20k out.

But you stick the extra 20k in the bank and that may be the difference in continuing to buy more properties or not.

So what is that money really costing you? $100 a month?
But if you are able to buy 5 more houses because the banks
like your cash position a lot more with the addtnl 20k, and each
house is generating $300/mo net cash flow. Whats that 20k really doing for you? Is it losing $100/mo or is it gaining $1,400 a month.

To me, I think it depends what you're going to do with the 20k. If you're going to put it in the next deal or stick it in the bank to show a stronger financial position to the banks, then I would take every penny I could out.

If you're going to use it to go on vacation or buy some "toys", then 
I would pass. Why give up your equity unless you'll end up with something to show for it?