Use cash-out refi, or owner raised capital for down payment?

[Dan Tarpein]

Hey all, thanks for taking time to read this. 

My name is Dan, and I have a new LLC for property investments that I started with my brother and sister. This LLC is located in the Quad Cities, Iowa, and my brother is the main boots on the ground component with the vast majority of RE experience compared to my sister and I. I'm located in California, and my sister is in Colorado. For each of the deals we have averaged about $25K owner capital for each down payment.

My question is this, since we got in on interest rates when they were between 3.125 and 3.99%, and the appraisal values for each of the properties has increased significantly, should we utilize a cash out refi for our next down payment? Keep putting in our own cash for a down payment? I want to keep the velocity of our money going, and not use my hard earned cash, but I also don't want to lose those sweet interest rates since our cash flow isn't terrible.  I'm attaching the financials for our three properties in case that helps someone figure out the numbers. This is current as of today. 

For reference, I've just started diving deep into RE education, reading the David Greene books, the whole nine, so I can be part of the solution instead of a bystander when it comes to real estate scenarios. 

Thank you so much for any input the community has. I still have a LOT to learn. 

Best, 

Dan

[Bjorn Ahlblad]

@Dan Tarpein Welcome to BP! I certainly would not trade those low interest rates for higher ones. I'd vote for putting in our own cash for a downpayment. Leverage is good, over leverage might be dangerous in our current market. That's my perspective.

[Ashley Noethe]

I am typically all about the cash out refinance, but in this market I would be weary of giving up a solid interest rate. I would vote on using your own cash and if rates settle down in the future definitely reconsider the cash out refi route for future investments.

[Dan Tarpein]

Ashley - thanks for the response. I think you and Bjorn are spot on. If we cash out refi we’re looking at the potential of increased $9K in mortgage expense/year. I’m definitely willing to do that if the right multi-family deal popped up that offset that increased expense. 

For now I haven’t seen a deal like that, so we’ll continue down the road of owner capital + profits (we don’t take any profit out of the account, it all rolls back into the business at this point). 

Once we start rolling again on some more residential deals, I think BRRRR'ing at similar interest rates makes more sense.

Thanks again for your input and your time, Ashley!