I'm semi-retired. Should I cashout refi to buy again?

Question

I often makes sense to cashout refi and buy again. But what makes this different is:

1) I consider myself semi-retired. Cashflow is important to me
2) I work part time so I don't have the income to get a conventional loan and my rates are higher. The quotes I've gotten have been from 4.75 (with 2 points) to 5.75)

My property is a triplex. 4000 rent, 850 mortgage, 1500 Net Operating Income. A full cash out might get me 150-160k after fees and take down NOI to $600/mo. My property is worth 450k, and current mortgage is 155k.

My plan would then be to buy a duplex or another triplex (which might take some savings but I'm pretty close).

Thoughts are that if I could get to two triplexes that are roughly the same, that would be $1200/mo. I would benefit from 2x appreciation and 2x rent increases. Rent increases have been great over the past 5 years, going from 900 to 1350. Also, it'd be nice to spread the risk on twice as many units.

OTOH, I don't want to get stretched too thin cash-wise. An interesting alternative is to simply pay my mortgage off early. That will bump up my income by $850/mo.

Thoughts?

Jason Shackleton · Answer

Hi @Alex Silang Great question. By the sounds of it you are really sold on the option of purchasing another investment property or two. As you said this will give you more appreciation potential and rent potential increase on more real estate.

The challenge is you currently have a nice portfolio set up with strong cash flow and that is important to you. If I were in your position I would do a refi and expand for sure and before full retirement. Here is why.

1. It sounds like that is what you want to do and for good reasons.

2. You do currently have an income. When you stop working all together it will become very difficult to qualify to refi and or purchase new properties.

3. You are going to soon be fully retired. You will have the time to manage and improve your new building thus increasing the potential cash flow in your portfolio.

4. Playing it safe is good but what happens 10 years from now when you look back on this decision to expand or not? If you expand you will have 1-2 more properties that are 1/3 paid off and likely worth way more than you paid for them. If you don't expand you will have played it safe but missed out on a nice bonus windfall 10 years or so into your retirement.

These are just my thoughts. Best of luck in picking the best path for you.

Jason

Theresa Harris · Answer

Run both sets of numbers with the higher interest rate.  Also factor in costs associated with refinancing and closing costs on the new place.  Another thing, is how long do you plan to be semi retired before switching to fully retired?  Once that happens, your buying power will go down again.  If the numbers make sense and I knew I'd lose the buying power in the next few years, I'd buy now.