In the BRRRR strategy, you generally do a cash out refi in order to get the cash to "repeat." Is there a POV on whether or not you should refi the entirety of your initial investment so that your COC returns skyrocket and your risk is reduced, verses refi just enough that's needed for your next investment and leaving in the rest as equity (assuming your next investment requires less initial investment than the first)?
When doing a cash out refinance, should I factor the closing costs into my COC return? I hear some people talking about how the cash out refi results in infinite COC returns, but that's not actually the case, correct?
Have you discussed what the LTV is with some of the banks you are wanting to do this cash-out Refi? I believe typically it's 75% for most banks so if you own the house free and clear, the house is worth 100K, you should be able to take out 75K. Banks make you keep some skin in the game even if you can take all the money invested in the property out.
IMO, I would take all that I can out as long as the rents still support the note on the house now. Plus taking care of vacancy, taxes, insurance, CAP X, and PM if you have that in place. It would be a case by case situation on these properties so if you have more concrete numbers we can look at them to see what they will end up after the Refi.
@Ryan M. I recommend cashing out as much as you can while still holding net positive cash flow. Definitely have reserves in case anything comes up. If you are unable to cash out as much as you want due to bank requirements (usually 75% LTV), consider setting up a HELOC. I consider equity in all my properties as reserves to expand my investment portfolio, and doing a cash out refi is a quicker way to have access to my initial investment.
It also depends how you bought the place, sometimes you have seasoning which can be up to a year. You'll be limited to purchase price and someitmes plus updates/repairs. But if you bought say 100k house via conventional loan , dumped 50 in it and it appraised for 250 3 months ago you're going to be capped at 150k by most banks and likey 75-85% of that till it's season (12 mo usually).
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you