Cash out refi? Is it a good idea?

3 Replies

We have a duplex that we are thinking about taking out 30% of the equity to look for other things to invest in.  We currently own 218K on a 15 yr loan at 4.5 % and make around $800/month cash flow with it.   IT appraised at 450K so we have $90K that we can take out if we refinance it.  

Back story- we bought it in 2010 and put 40k into it to rehab and add value to it.  A year ago we took out $95K (what we had originally put into in) and bought another duplex with that money.  We are trying to build our portfolio but are finding it hard in this market.  We currently have 3 duplexes and a vacation rental and have a lot of experience in rehabbing properties. 

Options are:

1.  Refi at a 30yr loan-   PRo- duplex still has around $90K of equity I can pull out which is enough for a deposit on another duplex/triplex in our area.  The refi rate is 5.675 and the mortgage is only around $100 more a month with the 30 yr refi so we could still have good cash flow.  Con-  rate is higher and costs $3000 to do the loan.  Market is really hot and so I don't have anything to put it into right now and good properties go quickly with multiple offers in our area. 

2. Do a HELOC on the rental- PRo- only have to pay interest on it if I use it. Con- Hard to use it to use it for a buy and hold property and not sure who does this type of loan.

3.  Just sit on it for now and wait for it to appreciate more and when I find a good property do the refinance at that time or not at all.

Would love any thought seasoned investors have on this idea.  Would love to hear what others have done in the past to get the best return on investments and not just have money sitting in rentals when it could be put to better use. 

Thanks!

@Monte Blunk You can run the math 100 times, It will always say to take the cash out and buy more deals, more gross cash flow, higher valued portfolio, higher cash on cash than the equity is currently providing. But your risk tolerance can’t be measure with math. It all has to do with your time horizon, the deal you can find to deploy the cash into and your long term goals. if you anticipate using the cash flow to live on at some point or bearing retirement the lower loan amount and less doors probably serves you best. If you have some time and are confident in the deals you can locate to make it all pan out it will likely serve you better in the long run. Good luck!

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