should I cash out refinance?

Question

I got a quote for a cash-out refinance for my primary home to take out over $1M cash at a 3.125% interest rate, 30-year fixed. This is much higher than my current interest rate.

However, I do not have a clear purpose for the $1M cash. One idea is to put it all into a fourplex that I own, which has a mortgage of 3.875%. Another idea is to bank it in S&P 500 and wait for the right investment opportunity, such as a housing market crash.

Any suggestions? Should I do the cash-out refinance and foregone my super-low mortgage interest rate? Also after cashing out, my monthly debt payment will be super high which will require me to keep my current job (no early retirement). Thanks!

David O. · Answer

Thanks. It is hard to find a fourplex with positive cash flow in California. My fourplex has negative cash flow.

I will look into a HELOC.

Joshua Janus · Answer

@David O. Why not buy another 4plex that cash flows well with the cash out refi? That would spread your risk, increase your doors and give you a wider base of assets to lend from versus piling it all into your current fourplex. A 3.125% interest rate is still very historically low, and you can definitely find a property that brings you a much better coc return than that annually and you also benefit from the other advantages of owning real estate.

Brett Chandler · Answer

@David O., great question! First of all, congrats on the progress you have already made. There are a lot of moving parts to your question. A couple of things that come to mind are: what is the remaining balance on your primary residence and fourplex? What is the cash-flow on your fourplex, and how much would it increase if you eliminate the mortgage payment? If the increase in cash-flow is more than the increase in payment, it might be worth looking at. Have you thought about using a HELOC or All-in-one on your primary to pay off your fourplex? Your interest rate would be variable, but if you use the increase in cash flow to aggressively pay down the principal balance, you could save significant interest cost and maintain the liquidity of the open-ended line of credit. I just refinanced my own primary into an all-in-one and am looking forward to tapping into that equity for an investment property, myself.