What to do with cash out refi lump sum?

11 Replies

I’m planning a cash out refi on my current investment property where I’ll get a lump sum of 200k at the beginning of April.

I have another property closing March 2022. Amount due: 250k.

I will likely use this cash to then pay down the 250k as an owner occupied.

What are the best strategies to maximize productivity of the 200k for the 23 months?

@Andrew T. , I can think of 3 options right off the bat worth considering:

  1. Dump it all in index stocks with a standing sell order at 5-10% below your purchase price to minimize downside risk. Raise that sell order as the market rises. 
  2. If you're more risk adverse, you could split 3 ways: Index funds, bond funds, CD or other very low-risk bond.
  3. Municipal bonds. You won't get a great rate but super safe and the proceeds are usually tax free.

You could also look to deploy that capital as a private lender (to flippers for example) or do a couple of flips/BRRRRs yourself. Definitely achievable with a 2-year time horizon. More work and risk, of course.

@Andrew T. that's some good advice from @Jaysen Medhurst

I wouldn't pay down my primary mortgage as that's usually your cheapest financing. However if having your house almost paid off helps you sleep better at night, then by all means pay it off.

You could also just sit on the cash and wait for the next deal? 

Having a little cash in the bank never hurt anyone. 

Best of luck!

@Jaysen Medhurst Thanks for this. I'm not so risk averse and index funds were my first thought. I'm interested in flipping/BRRRRs and is something I'm researching, but I've never flipped a house before, which adds to the risk. Never considered private lending though!

@Cameron Tope Owner occupied would definitely be better financing, I think I'd be stretched too thin if I didn't pay it down and took on another mortgage. Was thinking about sitting on the cash, but want to make it the most productive during the 2 years

Originally posted by @Andrew T. :

I’m planning a cash out refi on my current investment property where I’ll get a lump sum of 200k at the beginning of April.

I have another property closing March 2022. Amount due: 250k.

I will likely use this cash to then pay down the 250k as an owner occupied.

What are the best strategies to maximize productivity of the 200k for the 23 months?

Why do you want to "pay down" the 250K on the owner occupied? The money was dead in the form of equity, you resurrected it, and now you're going to kill it again. You should use that capital for some type of investment, don't rush of course but 200k is a lot of money that you can put to work.

Good luck!

 

Why pay off the existing loan? That's probably a low return (you didn't mention numbers so can't figure that out without the info). I'd hold cash and wait for buying opportunities. Heck I'm sitting on cash now and am looking for deals again.

@Jason Allen I get your point. I pulled the equity to purchase another property. My thought was if I kept the 200k to invest, would I then still be able to qualify for a mortgage to close my owner occupied or would my DTI be too high.

I’ve done a cash out refi on an investment property before and I used the proceeds to buy another cash flowing investment property.

The last thing I would personally do though is take the proceeds from a cash out refi on an investment property and dump that money into an owner occupied property. I can’t see how that would ever be the best use of that money. 

Originally posted by @Andrew T. :

@Jason Allen I get your point. I pulled the equity to purchase another property. My thought was if I kept the 200k to invest, would I then still be able to qualify for a mortgage to close my owner occupied or would my DTI be too high.

 I guess that would depend on your lender and their guidelines. Usually the income of a property will count toward what they'll lend to you.