Cash out Refi to purchase another

[Daniel Dube]

I currently have 2 properties with 23 rentals. They are cash cows with good interest rates. I net about 14k/mo thanks to 3.9% Interest rates. I want to increase my portfolio, but not sure if it makes sense. I have found a property I like for around 4MM. I could pull 1MM out of my 2 properties to purchase this but not sure if the numbers make sense. Refinancing, even at 6% would drop my monthly net to around $7,100. This new property would net me around $11,500 per month, but the net increase would only be around $4,400. I would essentially be taking on about 4.2MM in new debt to realize $4,400 gain. What are your thoughts considering I could increase rents and wait for rates to drop and when that happens refinance again and realize much bigger profits

[Devin Peterson]

Quote from @Daniel Dube:

I currently have 2 properties with 23 rentals. They are cash cows with good interest rates. I net about 14k/mo thanks to 3.9% Interest rates. I want to increase my portfolio, but not sure if it makes sense. I have found a property I like for around 4MM. I could pull 1MM out of my 2 properties to purchase this but not sure if the numbers make sense. Refinancing, even at 6% would drop my monthly net to around $7,100. This new property would net me around $11,500 per month, but the net increase would only be around $4,400. I would essentially be taking on about 4.2MM in new debt to realize $4,400 gain. What are your thoughts considering I could increase rents and wait for rates to drop and when that happens refinance again and realize much bigger profits

Hi Daniel, I think it would make sense in the long run. If you’re willing to take the smaller net returns for the short term. If it means you can access equity now to get your hands on a good deal, you can always position yourself to refinance in the very near future when rates drop again. Otherwise, you’ll be victim to the golden handcuffs of lower interest rates and missing out on good opportunities such as this one.