Rental Property Investor · Tyler, TX · Member since 2016 · 198 posts · 89 votes
We purchased a rural, small multi-family (12 units) in July of 2017. We added 3 units (to 15) and made some minor changes. These have increased our value by 75% through forced appreciation and buying it right. Along with the pay down of the loan, we have enough equity to refi cash-out and invest in additional properties while continuing to stabilize our current property through increased rents, utility billing back and additional units.
Question: Currently, we have an owner-financed loan at 4.6%/20 year 5/1 with a balloon 07/2022. We are approved for 6%/20 year, 5/1. With rates rising and being able to take cash out we would like to move now rather than in a year or two. We can take out about $175k, but that brings our cash flow to $0. This is out of the question. I have been trying to decide on the right mix of monthly cash flow and cash-out.
Does anyone have any experience they'd be willing to share? Thoughts?
Rental Property Investor · Campbell, CA · Member since 2017 · 419 posts · 499 votes
8y
Take it all out. Every last penny. Use it to finance a new deal. Whatever you ‘lose’ from the first property, the second will more than make up for it.
Think of it this way; you will own a house for ZERO out of pocket. Who cares if it cashflows or not.
New property will cash flow and that cash flow is free money.
Rental Property Investor · Whittier, CA · Member since 2014 · 324 posts · 268 votes
8y
I don't think the cashflow per door really matters. What matters most (to me) is getting the best return on equity (RoE) on the cash you have. If you can get another opportunity which will pay you more than the borrowing cost (6%), it makes sense to take the cash out. If you can't, don't take the cash out.
Rental Property Investor · Charlottesville, VA · Member since 2012 · 1k+ posts · 726 votes
8y
@Shea Spinelli I think your instincts to choose an amount between the full cash-out you could get and nothing are good. I've always believed that balance or sort of the middle of the road answer is the best.
Having said that, let me argue both sides of the issue. I do this often trying to figure my next, best move for my portfolio.
Borrow as much as you can - I have a few houses that have doubled in value since I bought them. When I did a cash-out refi for the new value, the house in no way cash flows. I'm talking like houses that are worth $200k that rent for $1300. That's not a great deal but when I refied into that deal I pulled out like $100k in cash with -$200 projected monthly cash flow.
I can redeploy that cash and easily generate $1k/month in cash-flow. So why worry about the $-200/month?
The important thing here that I'm not sure individuals think about so much is what is your cashflow and leverage on your overall portfolio?
Borrow as little as possible - I'm a very conservative person by nature. Why borrow more money than you need? Pay off your debts first. $0 cashflow is a recipe for disaster.