Cash out refi or conventional loan?

Question

Hi all,

Would appreciate any advice as I’m relatively new to REI. I have two properties now, each with about 200k in equity. One is cash flow positive one is not. I’m thinking about a cash out  refinancing on the property that is not cash flow positive to take out cash, lower my payment and break even, and use that cash to purchase a third house outright.

Alternatively, I could do a conventional loan on the third property (100k price, rents for $1200/month) and put 20% down. I’m sure there are other options as well. Any thoughts on purchasing a property in all cash vs a loan or are there better options?

Thanks BP community in advance.

Jason Simon · Answer

@Jason Wray

Thank you Jason for your thoughts, really good points you make. In your example I’d essentially be refinancing 1 house and taking out 2 conventional loans on two investment properties, correct?

Jason Wray · Answer

Jason,

I would advise 100% do a cash out refinance and buy the next property while equity is available.  My question would be why not buy (2) properties and split the cash into two down payments.  You end up with two rentals instead of one and it would be a better ROI in the long run.  There are a lot of new programs that offer higher LTV options for investment properties and the  income qualifications for DTI are more open to alternative income options - Bank Statements, DSCR, Partial year SE. etc..