Cash out refinance or not?

Question

I'm waiting for a dip also to 1031 some of my properties again. The only question right now is whether I should cash out REFI any of them. I'd get a lower rate and sit on even more cash waiting for buying opportunities that are not time and rule contingent like 1031 exchanges are. Only downside is tax benefits go down (can't deduct part of the interest) and cash flow goes down (given that cash flow goes down the partial interest deduction should not be a big deal so I might end up showing no income on the returns where as right now they are showing a profit). Thoughts?

The idea behind the cash out refinance is not to use current cash on hand, to use that to diversify into other assets, only use existing dead equity in my houses that are sitting at 50% equity positions, some much much more.

Account Closed · Answer

Waiting! Waiting! Waiting! I hope you are running on those batteries with the bunnies in their ads. It is going to be a long long time before prices drop.

It is great to have a ton of cash when the market hits the bottom like 2008, but I don't think that will happen again in our lifetime.

Personally, I like to be in the game all the time. Since we can lose a lot of money while waiting for a downturn, I am constantly looking for other avenues e.g. buying at the live auctions, looking online every day just to keep up with prices, flipping trailer homes, or just working my regular job a little harder to make more money.

Account Closed · Answer

Depends. You are in Seattle and if the properties are in Seattle, I think you can see some serious tax increases and other risks going forward. The city leadership is bonkers. I sold my properties in Fauntleroy, Magnolia, Madison Park, Columbia City and moved the money to places they actually like landlords, AZ and TX. On the other hand, if your properties are already in safer locations, I'd cash out refi and in about September start buying agin. There will a lot of willing sellers and quite a few distressed ones.

Caroline Gerardo · Answer

Weigh the cost of the refinance and don't pay points, in case you decide to sell. Use rebate pricing to cover title and escrow. Rates will be lower than what you have, with cash you will be flexible

John Barrett · Answer

@Jack B. It is really difficult to predict what's going to happen as there are so many factors affecting the economy.  I do not expect a rise in foreclosures as demand for properties remains strong and people are still willing to pay high prices for distressed properties.  Until demand falls off or additional supply becomes available there will continue to be upward pressure on both property prices and rent.

I have been refinancing my properties that I intend to hold to capture these historically low rates.  While it does lower cash flow, it does lock in gains that you can redeploy into other investments.  Many are arguing that rates will remain low for a long period of time, I would rather lock in very attractive rates for the long term.  I am not convinced it is possible to accurately predict where rates will go given all of the unusual actions that have been taken to support the economy.

Best of luck,

John

Jack B. · Answer

No way in hell I'd ever own property in the city itself. I own in the surrounding suburbs. I know how the "leadership" there is mentally retarded and publicly communists.

Yeah I'm anticipating a dip in the coming year. Foreclosures and evictions are soon to come. Rents will likely rise as the demand rises but the supply of rentals is down. Also foreclosures will increase the supply of housing and help drive down prices a bit.

Jack B. · Answer

Ummmm....multiple economists who predicted the last recession said that housing prices will dip in the near future. Evictions and foreclosure moratoriums are soon expiring. Common sense dictates that those factors mean prices will soon dip. Also studies have shown real estate has cycles, and is driven by supply and demand. Those of us who studied economics understand these principles. No one ever said a 2008 like housing crash but you....