Cash-0ut Refinance 500K Cash back opportunity

[Rob Mudd]

Hi fellow investors. I purchased an 8 unit apartment building back in May. Thank-you Bigger Pockets! I used a HELOC to close. I have since stabilized the property. I approached a broker about refinancing the property and freeing up my HELOC. It was suggested that I amortize the property over 35 years on a ten year term to take advantage of low interest rates. Here's the surprising part. Turns out I bought the property CHEAP (Thanks Bigger Pockets) and using a 5 Cap rate I stand to take $500k out of the property and completely pay off my HELOC.

Great news right! Not so fast! I have spent my life being averse to debt so I am struggling with this scenario. On one hand I would love to take that cash and buy another property and on the other hand I wonder if I would be better paying this property off quicker and enjoying a debit free asset.

I have been watching Robert Kiyosaki, Dave Ramsey and Grant Cardone to try to reset my thinking. Has anyone else struggled with this problem/opportunity.

Thanks so much and happy investing!

[Chris Mason]

Originally posted by @Rob Mudd:

Hi fellow investors. I purchased an 8 unit apartment building back in May. Thank-you Bigger Pockets! I used a HELOC to close. I have since stabilized the property. I approached a broker about refinancing the property and freeing up my HELOC. It was suggested that I amortize the property over 35 years on a ten year term to take advantage of low interest rates. Here's the surprising part. Turns out I bought the property CHEAP (Thanks Bigger Pockets) and using a 5 Cap rate I stand to take $500k out of the property and completely pay off my HELOC.

Great news right! Not so fast! I have spent my life being averse to debt so I am struggling with this scenario. On one hand I would love to take that cash and buy another property and on the other hand I wonder if I would be better paying this property off quicker and enjoying a debit free asset.

I have been watching Robert Kiyosaki, Dave Ramsey and Grant Cardone to try to reset my thinking. Has anyone else struggled with this problem/opportunity.

Thanks so much and happy investing!

If you're debt averse, maybe just pull enough out to pay off the HELOC. There's no rule that says a cash out refinance MUST be for the max you can get. And this will allow you to use that same HELOC for the next one -- recycling is good for the environment, right? :P You did all that paperwork to get the HELOC, why only use it once?

Unsolicited, but my ratings of the following:

Kiyosaki - Pretty good. Some of the anecdotes in his book are a tad implausible, but I'll grant artistic license. 

Ramsey - Good for people that struggle with debt addiction. Whenever someone calls me to consolidate $50k in credit card debt, I do the cash out refi, and finish with a referral to Ramsey. But not everyone needs the Ramsey medicine, just like not everyone needs to join AA, some people can have a beer and not get blackout drunk. No credit card debt except a little "rewards points" on the side, modest/no car payment, 775 FICO, living well within their means? Yeah, that person probably doesn't need the Ramsey medicine (OP, that seems like it describes you).

Cardone - Hard pass. I listened to one of his call-in radio-style youtube episodes. Someone with $2k to their name and no income with a rent payment coming due in a week, asked what to do. Cardone told him to invest his last $2k in Cardone's REIT. Yeah, pass, hard pass to boot. That's horrible advice.