Rental Property Investor · Portsmouth, NH · Member since 2014 · 64 posts · 16 votes
I am a newbie and I paid off 80% of my rental mortgage. I have already applied for cash out refi planning to use for 25% downpayment and I need to finalize my decision next week. Is it wise to take cash out refi and invest in my second multiplex given the market conditions? OR wait till market cools off or crashes and then take out cash out refi.. please advise
I think it depends on what deal you can find. Listen to the numbers. If your market is giving you properties you can buy and make a good profit, it only makes sense to buy them. Even if the market moves lower, your rental income will not, so you really aren't in a position to "lose" as long as you buy a property that is a good deal and will turn a descent profit as a rental. If all you can find is retail deals that are at the top of the market prices, the numbers would probably tell you they aren't a good deal to buy in the first place.
For us it is a waiting game. We are always looking, but buying far fewer than we have in the past. What we HAVE been doing is selling our least favorite units - again - listening to what the numbers are telling us. Right now a lot of our properties are telling us, "If you sell me, you will get 10 years worth of rental income as profit on the sale and not have to deal with any more repairs, or tenants on that property!" It's a pretty good motivation to sell some of our least favorites! We are full time in real estate.. so we rely on our rentals for all our income. We can't sell them all... but we have taken some profits by selling a few in the past year. We have used the proceeds to pay down other mortgages... going from 19 loans to 9 through cash out refis, a few sales, and doing a consolidation loan! This sets us up well to be able to buy more properties through Fannie Mae residential financing when they do eventually show up.
I am a newbie and I paid off 80% of my rental mortgage. I have already applied for cash out refi planning to use for 25% downpayment and I need to finalize my decision next week. Is it wise to take cash out refi and invest in my second multiplex given the market conditions? OR wait till market cools off or crashes and then take out cash out refi.. please advise
I feel like this is all in your personal risk tolerance.
No investment is a sure thing.
Without knowing anything else about your project, I’d say stick to the fundamentals and be conservative with your estimates. scale back profit a point or two, increase reserves a few points and take it from there.
I think it depends on what deal you can find. Listen to the numbers. If your market is giving you properties you can buy and make a good profit, it only makes sense to buy them. Even if the market moves lower, your rental income will not, so you really aren't in a position to "lose" as long as you buy a property that is a good deal and will turn a descent profit as a rental. If all you can find is retail deals that are at the top of the market prices, the numbers would probably tell you they aren't a good deal to buy in the first place.
For us it is a waiting game. We are always looking, but buying far fewer than we have in the past. What we HAVE been doing is selling our least favorite units - again - listening to what the numbers are telling us. Right now a lot of our properties are telling us, "If you sell me, you will get 10 years worth of rental income as profit on the sale and not have to deal with any more repairs, or tenants on that property!" It's a pretty good motivation to sell some of our least favorites! We are full time in real estate.. so we rely on our rentals for all our income. We can't sell them all... but we have taken some profits by selling a few in the past year. We have used the proceeds to pay down other mortgages... going from 19 loans to 9 through cash out refis, a few sales, and doing a consolidation loan! This sets us up well to be able to buy more properties through Fannie Mae residential financing when they do eventually show up.
Annual rent : 51k, tax : 9k, maint:3k, cap exp: 3k, vacancy rate: 3k, mortg: 35k (on 600k price with 25% down)
So, it takes in $51k, and the annual expenses are $53k? Yeah, I would call that a bad deal! And you are going to put 25% down to lose that money too, huh?
Unless there was some major Appreciation play there you just need to run away! Or, you could send ME $1,000 a month and still come out $1,000 ahead by not taking the deal! (Lol!)
I am a newbie and I paid off 80% of my rental mortgage. I have already applied for cash out refi planning to use for 25% downpayment and I need to finalize my decision next week. Is it wise to take cash out refi and invest in my second multiplex given the market conditions? OR wait till market cools off or crashes and then take out cash out refi.. please advise
If I’m reading your post right, are you saying you have 20% equity in the property? If that is the case, there is no cash out refi available for you because they require leaving in 25% of the value of the property. From a cash out perspective you are upside down, no?
@Randall Alan, I have 80% equity on my rental unit. I’m trying to use the cash out refi from myrental as a downpayment to invest in another multiplex. I hope that clarifies ..
@Randall Alan, I have 80% equity on my rental unit. I’m trying to use the cash out refi from myrental as a downpayment to invest in another multiplex. I hope that clarifies ..
Right… but do you get what I’m saying that you can only cash out the amount of equity that exceeds 25% equity in the property. If you only have 20% equity in the property, there is no cash available to take out of your rental property.
As an example, if you owned a $100,000 property, and owed $50,000 on it, your equity is $50,000 and you could get cash out on a refi of $25,000 (less closing costs of probably $3-5k), as the first $25,000 (25% equity) has to be left in the property.
@Vijay G. It's good to use the money you have rather than letting it sit and do nothing but run the numbers and see if it makes sense and if you'll get cash flow. We did it early 2021 and got a 3.5% refi rate and used those funds to buy a 4-plex but i wouldn't do it now, the rates and prices are both pretty high. That's just me. Your situation and location may be different.