Mandeville, LA · Member since 2018 · 42 posts · 7 votes
I own five rental properties and am in the process of doing a cash out refinance on one of them. I own my current residence and do not have a mortgage on it. Do you think it is better to do a cash out refinance on my primary residence to save in interest and receive more money to invest or to do it on my rental property. I could save about 300 dollars a month doing it on my home but do not know if I want to risk losing my home to invest in more properties. What do you think?
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
6y
@Alecia S. I have done both, and if you are looking to be aggressive I think it makes sense to do both! You can access more capital to invest, and you can put your equity to work. I like to calculate out my return on equity from time to time, and after a few years you may notice that due to appreciation your equity is only returning a small percentage. If you can put that equity back to work, you can make a higher return.
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
6y
@Alecia S. I have done both, and if you are looking to be aggressive I think it makes sense to do both! You can access more capital to invest, and you can put your equity to work. I like to calculate out my return on equity from time to time, and after a few years you may notice that due to appreciation your equity is only returning a small percentage. If you can put that equity back to work, you can make a higher return.
Investor · Lafayette/Baton Rouge, LA · Member since 2013 · 1k+ posts · 915 votes
6y
I think the best approach would be to get a HELOC on your primary residence. You can then buy investment properties with cash and then cash out refi those to pay back your HELOC. Just limit yourself to only buy what you can with your HELOC and keep paying it back as you refi the investment properties. You will save on interest when you are looking for deals. You can even manage your leverage on your investment properties by not borrowing as much as lenders will lend, but just enough to pay back your LOC. Maybe take out some extra now and then to fund something fun, but you can manage your risk by managing your leverage. This is the BRRRR strategy. You can use your equity through the HELOC over and over again if you manage how you use it!
In our state, I would only finance the investment properties through an LLC with a portfolio lender (small local bank/credit union) using commercial loans. It might sound confusing, but renting a house is a commercial use, even though it's a residential property. These are 20-year amortized loans that have slightly higher interest rates than 30-year Freddie and Fannie loans. If you use those 30-year loans, you run into the 4 and 10 loan limits. The rates are only set for 3-5 years too on commercial loans. That's how they manage long term interest rate risk. There are no limits to how many commercial loans you can get with your LLC! Except the limits set by how much your lender(s) thinks you can borrow and service the debt! ;-)
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
6y
@Alecia Seastrunk
I did both and have no regrets. First I did a cash out refi on my personal home and bought 3 SFRs with the 100k I took out. And last year I did a cash out refi on a paid off rental I have. Used that cash to buy another one for cash. Fixed that house up and did another cash out to buy another SFR for cash. Then did it again. I'm ok pulling equity out of homes and putting it to use as long as I'm cash flowing on each property.