Save some funds from cash out refinance for large repairs?

Question

I’m not new to BiggerPockets, but new to investing and being active on the forums (mainly a lurker), and I’m changing that today.

I was able to purchase a SFR back in 2019, and the property has been able to build up some equity since then. I've been floating around the idea of doing a cash out refinance to reinvest in another property. I'm eligible to cash out around $150k and thinking of cashing out just $100k so that the cash flow on the property doesn't take that big of a hit. Is it out of the ordinary to cash out a little more (thinking another $10k-20k) and have it on hand for large, unexpected expenses like new HVAC, roof, etc.? The roof and HVAC will be at the end of their lifespans within the next few years. The property could use a little renovation within the next 5 years as well.

Steve Vaughan · Answer

Rates are over 6% now.  Your rate from 2019 is probably in the 3s?

This cash out will cost you indigestion, $5k and thousands in interest over time.

I'd save up for the repairs and improvements as I go.

Brian Ellis · Answer

When doing a cash out refinance, keep in mind you’re paying for closing costs. So that’s a fairly large expense in itself.

I usually use HELOC as a form of accessible reserves. All you’re paying is the appraisal fee and then interest only on what you actually use.

I will only do a cash out refi when I already have a property lined up to purchase, and the returns exceed the new mortgage expenses.

Matthew Crivelli · Answer

@Paul Clata

Not a bad idea to take proceeds to maintain your investment. It's better than taking the money and blowing it on consumer goods like a new BMW lease lol.

Save some funds from cash out refinance for large repairs?

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