Rental Property Investor · Los Angeles, CA · Member since 2019 · 47 posts · 20 votes
I purchased a positive cash flowing property last summer, for cash and am now (finally) looking to do a cash-out refi to pull the cash to use on another property. My other properties were all purchased with traditional bank mortgages so I get that side of the equation. On this one, I bought at let's say $51000 and its now worth approx. $62000. Not a huge appreciation, but it's something and considering this is Midwest, it fits. The refi rates I've gotten estimates for so far are 5.25% (traditional bank) or 5.62% (investor focused broker) plus around $3200-3700 in closing costs. Seems excessive to me. I know this wasn't a true BRRRR since I purchased with a renter in place and the place has only had a few "rehab" fixes completed (exterior trim work and painting, bathroom leak floor replacement).
I'm looking to start scaling up and acquiring faster (better!) but in this case the cost to pull $42k out seems a little higher than I expected. What am I looking at wrong or missing here?
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
7y
Keep in mind you typically defer 1-2 payments when you refinance. You can pay the balance right back down using that temporary increased monthly cashflow, if you elected to roll closing costs into the new loan.
If you had and are going to continue to have an impound account for taxes and insurance, your old impound account balance will be refunded to you, after most folks roll the cost of the new escrow account into their loan balance. Apply that towards paying the balance down too.
Do both of those things, and >90% of refinances will not leave you unnecessarily more in debt (in this case it's a cash out refinance, so it can't be avoided).
Do most Americans do those above two suggested things, or do most Americans take that money and go buy shiny new objects with it? That's a different question entirely....
Rental Property Investor · San Diego, CA · Member since 2019 · 290 posts · 253 votes
7y
@Doug Schorr Have you tried smaller credit unions or different banks? The closing costs seem a little high to me, but the rates don't seem all that high for a cash out refi on an investment property. But then again, I am not an expert, I've only financed a couple deals.
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
7y
Keep in mind you typically defer 1-2 payments when you refinance. You can pay the balance right back down using that temporary increased monthly cashflow, if you elected to roll closing costs into the new loan.
If you had and are going to continue to have an impound account for taxes and insurance, your old impound account balance will be refunded to you, after most folks roll the cost of the new escrow account into their loan balance. Apply that towards paying the balance down too.
Do both of those things, and >90% of refinances will not leave you unnecessarily more in debt (in this case it's a cash out refinance, so it can't be avoided).
Do most Americans do those above two suggested things, or do most Americans take that money and go buy shiny new objects with it? That's a different question entirely....
@Doug Schorr Have you tried smaller credit unions or different banks? The closing costs seem a little high to me, but the rates don't seem all that high for a cash out refi on an investment property. But then again, I am not an expert, I've only financed a couple deals.
Thanks! I'll check around and see what other options I can find.
Keep in mind you typically defer 1-2 payments when you refinance. You can pay the balance right back down using that temporary increased monthly cashflow, if you elected to roll closing costs into the new loan.
If you had and are going to continue to have an impound account for taxes and insurance, your old impound account balance will be refunded to you, after most folks roll the cost of the new escrow account into their loan balance. Apply that towards paying the balance down too.
Do both of those things, and >90% of refinances will not leave you unnecessarily more in debt (in this case it's a cash out refinance, so it can't be avoided).
Do most Americans do those above two suggested things, or do most Americans take that money and go buy shiny new objects with it? That's a different question entirely....
Got it.. The shiny new object I want to buy with this cash-out refi is a dusty old house in the Midwest - cash flow rental. For now, I have no escrow account on this house since I own it outright, but may look to add taxes and interest into the mortgage for ease of use if I refi it.. We'll see...
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
7y
this is about right. 6% (of appraised value) in closing costs.
loans under 60k have higher than normal costs because the bank needs to make something and the floor here is too low, so based on the cash out amount this is a touch high but that's the cost of going cheap ;)
this is about right. 6% (of appraised value) in closing costs.
loans under 60k have higher than normal costs because the bank needs to make something and the floor here is too low, so based on the cash out amount this is a touch high but that's the cost of going cheap ;)
Thanks @Alexander Felice I've definitely noticed that closing costs on a "cheap" mortgage under $75k is most definitely not cheap..
Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
7y
I have a rental that I paid cash for. This past April I did a cash out refi commercial loan to buy another property. 5.25%, 20 years, first 5 years fixed rate. The total fees for this loan was $885 on $60k. I walked out of the bank with $59,115. Small investor friendly bank.
Rental Property Investor · Los Angeles, CA · Member since 2019 · 47 posts · 20 votes
7y
@Matt M.now that's the deal I need. Similar rate that I'm looking at for 30 years (I'd never have it that long without doing something on the rate side) but without the high closing fees. Did you have a relationship with this bank to start with? Is it local to where you live or near your properties (if they are remote)? I'm not holding in LLC so unsure if that would work here.
Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
7y
@Doug Schorr
It is a small local bank, only 3 branches. I did not have a relationship prior to that loan, but apparently I do now as I’m buying yet another property and got a loan from them again, closing next week, they needed no other docs, all they did was run credit again and he could have closed in 2 weeks had the title company been ready.
Rental Property Investor · Los Angeles, CA · Member since 2019 · 47 posts · 20 votes
7y
@Matt M. Awesome! I’m going to start looking for small local options. So far, I haven’t found anyone small enough but I do like is Los Angeles and know I won’t find them here.
Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
7y
@Doug Schorr
Nothing out of line here. I average $5-$6K in closing costs on my ($50K-$70K) portfolio loans.
One thing I want to mention is that while the numbers are critical in any deal, when it comes to lenders, there are other things to take into account such as:
1. Are they a good long-term lending partner for you?
2. Do they push to close quickly?
3. Do they provide extra details on the property to help aid in underwriting and appraisals?
4. Do they offer a fixed vs. an ARM loan?
I can go on and on. Again, regardless of lender, the numbers have to work at the end of the day! Just don't look as a lender as only being someone who offers x% APR at $x in closing costs. There's more to it. Lastly, I agree with the other posters, small local community banks and credit unions are usually the best option.
Rental Property Investor · Gulfport, MS · Member since 2018 · 113 posts · 133 votes
7y
@Doug Schorr I’m in the midst of a refi now. 4.75% fixed, closing cost is $3K + $2K escrow prepays for taxes and insurance. $70K loan with a total closing cost of 5K. I think your fees are pretty standard.
Investor · Roebling, NJ · Member since 2016 · 55 posts · 39 votes
7y
I have 2 cash out mortgages with a small (under 10 branches) bank here in NJ. both homes appraised for about 105k. mortgages were for 65k. about $500 in fees total. 5.5 fixed interest.
I have heard that fees can be much more on lower value assets but theres no way I would be investing if I had to pay fees like I see in some of the replies.
It most likely what @Alexander Felice mentioned that with the lower loans, your lenders are most likely doing extra work to recoup their fee. I guess my one open question would be what LTV you are getting?
I've use american federal mortgage here in the Northeast and gotten really competitive rates, but most of my refinances are at higher amounts. Normally for my cash-out refinances the quoted investment rates are around 0.5 to 0.625 higher vs a standard residential 30 year fixed. So it appears for the lower mortgage amounts, your bank trying to make money from you both ways, with a slightly higher investment rate and also additional fees compared to the value of the house.
Based on my loan estimate worksheet In my current refinance where I locked in the rate on 07/30, my cashout loan for $187,500 is at 4.375. My closing costs are roughly 3.5K (2,000 title, 450 documentation, 600 appraisal, and 400 prepaid interest) Since my LTV is at 75%, I always waive escrow, that way I can pay all my insurance with a business credit card to get points and the free APR for a year. Now if I can figure out an efficient way to pay property tax with a rewards card and not pay a processing fee then I would be golden.
As you mentioned once you start to scale the fees will all add up, but if you find similar rates back it maybe due to original value of your loan.