Cash Out Refinance Question

[Matt Lorenzo]

I own a 1-bed 1-bath condo in Cleveland, Ohio that was purchased in full for $50,000. We had the kitchen completely remodeled and now the condo is about $60,000. There is 1 renter there who is paying $800 plus utilities. I pay the HOA cost every month which is $300, insurance $40, and taxes $60. So my net after taking all of this out is about $400 per month.

I'd like to put down-payments on a new property or two in the near future so I figured my best option to keep my velocity of money rolling was to do a cash-out refi on the condo. I started working with a mortgage company in Cleveland and I've been now told that they will only go up to 75% which would give me $45,000 to use for other down-payments. I'd imagine I'll pay around $5000 in closing costs for the refi as well.

The agent quoted me a rate of 5.125% which is about a payment $245 plus taxes and insurance so I'd end up paying the mortgage company about $350. I'd like to get peoples thoughts on whether this would be a good deal because Im spending most of my rent profit from the condo to pay for the cash-out loan.

I know David Greene talks alot about getting cash-out refinances but I guess I wasnt paying attention to if he talks about the fees and cost of paying the loans back.

  Thanks in advance for your help, and let me know if I need to give any more details.

[Brady Morgan]

Ah, that makes more sense then. If you have to keep it but refinancing will eat up most of your cash flow then you need to ask yourself if refinancing and reducing the cash flow on this property will allow you to make more money than what you are currently making with it. Basically this sets the bar for your criteria on the new deals. If you come out of it making more money in the end, then I'd go for it. If you make more cash flow by not refinancing and staying in the condo, then maybe just save up the cash flow for a couple years to build capital for reinvesting? I will say this, now is a good time to refi, as values are up and rates are low. So it likely won't get much better than now. You just need to make sure whatever deal you go into with the refi money puts you in a better position that you otherwise are now. Hope that makes sense.