Cash out refinance, or sell second property?

General Real Estate Investing
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Cash out refinance, or sell second property?

Wyatt Huber
Member since 2024 · 4 posts · 1 vote

Hello, im new to the forum. Hoping to get some opinions.

I currently own two homes, one i live in the other i rent out. I want to upgrade to a better home for myself. Trying to decide if i should cash out refi the one im living in or sell the rental property and take the equity to get a new home, and rent out the current home im living in leaving me with one rental. If i cash out refi i will have two rental properties.

I spoke with my lender and we did the math. The home i live in is a low interest loan and i only owe another 40k on it, will be paid off within 4 years. If i cash out refi, its going to cost me 259k in interest to take out the 150k to use for a down payment. Leaving me with a payment including taxes and insurance of about 1600 a month for another 30 years. It will still be cash flow positive as it can rent for 2200-2300. Leaving me with roughly 600 a month in profit. If i dont refi the property, in 4 years it will be about 1900 a month of profit after taxes once paid off.

The property im renting out now has 180k in equity currently (enough for 20% down on next house). This property is currently 600 a month cash flow positive as well with a low interest.

Given the numbers above. I would like to hear opinions on cash out refi, keep two rentals, and acquire the third home that i would live in, or sell the one rental to use equity to acquire my next home (which i would live in) and rent out the home im currently living in which will be paid off in 4 years, leaving me with one rental property instead of two.


Thanks for reading

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Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
2y

The best answer depends on your age, your goals, and lots of other factors.  Hard to tell.

Since one house is 4 years from being paid off but I'm guessing you aren't in your 50s, having lived in that house for 26 years, I would say this.  If you want to become rich through real estate investing, stop paying off your mortgages early.

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  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    2y

    The best answer depends on your age, your goals, and lots of other factors.  Hard to tell.

    Since one house is 4 years from being paid off but I'm guessing you aren't in your 50s, having lived in that house for 26 years, I would say this.  If you want to become rich through real estate investing, stop paying off your mortgages early.

    1Reply
  • Wyatt Huber
    OP
    Member since 2024 · 4 posts · 1 vote
    2y
    Quote from @Greg Scott:

    The best answer depends on your age, your goals, and lots of other factors.  Hard to tell.

    Since one house is 4 years from being paid off but I'm guessing you aren't in your 50s, having lived in that house for 26 years, I would say this.  If you want to become rich through real estate investing, stop paying off your mortgages early.

     Thanks for your response, im 29 currently and inherited the house im living in now. I had already bought the other house before i inherited this one. The first house i bought is now my rental instead of the one i inherited which i was renting out for the last 4 years.

    Long term Goals are to acquire more properties over time, currently my short term goal is to upgrade to a nicer house to live in.

    My realtor swears up and down not to sell it and to refinance the one im in, as well as my lender, but 259k in interest going from it being paid off in 4 years to 1600 a month for another 30 years is a hard pill to swallow, even though technically the tenants would be paying it off but at the same time i lose allot of profit.

    0Reply
  • Gary Mascitis
    Member since 2024 · 53 posts · 11 votes
    2y
    Quote from @Wyatt Huber:

    Hello, im new to the forum. Hoping to get some opinions.

    I currently own two homes, one i live in the other i rent out. I want to upgrade to a better home for myself. Trying to decide if i should cash out refi the one im living in or sell the rental property and take the equity to get a new home, and rent out the current home im living in leaving me with one rental. If i cash out refi i will have two rental properties.

    I spoke with my lender and we did the math. The home i live in is a low interest loan and i only owe another 40k on it, will be paid off within 4 years. If i cash out refi, its going to cost me 259k in interest to take out the 150k to use for a down payment. Leaving me with a payment including taxes and insurance of about 1600 a month for another 30 years. It will still be cash flow positive as it can rent for 2200-2300. Leaving me with roughly 600 a month in profit. If i dont refi the property, in 4 years it will be about 1900 a month of profit after taxes once paid off.

    The property im renting out now has 180k in equity currently (enough for 20% down on next house). This property is currently 600 a month cash flow positive as well with a low interest.

    Given the numbers above. I would like to hear opinions on cash out refi, keep two rentals, and acquire the third home that i would live in, or sell the one rental to use equity to acquire my next home (which i would live in) and rent out the home im currently living in which will be paid off in 4 years, leaving me with one rental property instead of two.


    Thanks for reading


     Hi Wyatt,

    I would say the best option would be to cash out refinance the property you currently live in into a commercial loan like a DSCR loan and use the money to purchase your next home. Then you have the best of both worlds where you can keep two investment properties while also upgrading to a better home for yourself. Unless you come across an opportunity that has much better cashflow, I don't see a reason to get rid of a property that has decent cashflow with a low interest rate in the current environment. Happy to help wherever I can. Feel free to reach out!

    Best,

    0Reply
  • Jack Matthias
    Lender · Chicago · Member since 2023 · 176 posts · 70 votes
    2y

    I personally won't touch either of the properties. I would wait till you have 5% to put down on the new place and keep both as rentals without doing anything to them.

    0Reply
  • Wyatt Huber
    OP
    Member since 2024 · 4 posts · 1 vote
    2y
    Quote from @Jack Matthias:

    I personally won't touch either of the properties. I would wait till you have 5% to put down on the new place and keep both as rentals without doing anything to them.

    Thanks for the response. In a perfect world that makes the most sense. But only putting 5% down on a 500-600k property would leave me with a massive payment with todays rates. Which is why i want to put 20% down.
    0Reply
  • Wyatt Huber
    OP
    Member since 2024 · 4 posts · 1 vote
    2y
    Quote from @Gary Mascitis:
    Quote from @Wyatt Huber:

    Hello, im new to the forum. Hoping to get some opinions.

    I currently own two homes, one i live in the other i rent out. I want to upgrade to a better home for myself. Trying to decide if i should cash out refi the one im living in or sell the rental property and take the equity to get a new home, and rent out the current home im living in leaving me with one rental. If i cash out refi i will have two rental properties.

    I spoke with my lender and we did the math. The home i live in is a low interest loan and i only owe another 40k on it, will be paid off within 4 years. If i cash out refi, its going to cost me 259k in interest to take out the 150k to use for a down payment. Leaving me with a payment including taxes and insurance of about 1600 a month for another 30 years. It will still be cash flow positive as it can rent for 2200-2300. Leaving me with roughly 600 a month in profit. If i dont refi the property, in 4 years it will be about 1900 a month of profit after taxes once paid off.

    The property im renting out now has 180k in equity currently (enough for 20% down on next house). This property is currently 600 a month cash flow positive as well with a low interest.

    Given the numbers above. I would like to hear opinions on cash out refi, keep two rentals, and acquire the third home that i would live in, or sell the one rental to use equity to acquire my next home (which i would live in) and rent out the home im currently living in which will be paid off in 4 years, leaving me with one rental property instead of two.


    Thanks for reading


     Hi Wyatt,

    I would say the best option would be to cash out refinance the property you currently live in into a commercial loan like a DSCR loan and use the money to purchase your next home. Then you have the best of both worlds where you can keep two investment properties while also upgrading to a better home for yourself. Unless you come across an opportunity that has much better cashflow, I don't see a reason to get rid of a property that has decent cashflow with a low interest rate in the current environment. Happy to help wherever I can. Feel free to reach out!

    Best,


     How doe a dscr loan work?

    0Reply
  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    2y
    Quote from @Wyatt Huber:

    My realtor swears up and down not to sell it and to refinance the one im in, as well as my lender, but 259k in interest going from it being paid off in 4 years to 1600 a month for another 30 years is a hard pill to swallow,

    LOL  The $259K is a marketing gimmick to get you to pay off mortgages early.  That number can only be the lifetime interest paid on the loan.

    Do the math.  If you pulled the money out and invested it wisely, the cash you pulled out might make you $500K in cash flow, tax benefits, appreciation or other benefits.

    So, do you want to avoid $259K in long-term interest or make $500K in long-term gains?  Your choice.
    0Reply
  • Bryan Montross
    Real Estate Agent · Crownsville, MD · Member since 2018 · 102 posts · 36 votes
    2y

    At your age I would definitely recommend keeping both properties. Personally I never look at how much interest I pay over the course of a loan. I don't know why your lender would even be presenting that to you if he truly understood your goals of investing. You have a house that will be paid off by tenants and you are getting paid to have it. Interest is just the cost of business. Additionally, you will now have 3 houses (your primary and 2 rentals) that are appreciating, which is where real wealth comes from, not from the cash flow. Keep building your properties, not trying to get rid of them at this stage.

    0Reply
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