Downsides of paying cash then refinancing later for a single family rental?

[Ariella Jacques]

Hello!

My husband and I have saved up enough to pay cash for our first property, which we would like to live in for a short time (~1 year) before getting another property to move into and renting out the first property. We are currently renting an apartment for our own housing. It will be my first time buying a house.

We were thinking of paying cash for our first property and later do a cash out refinance to assist in funding down payments for future properties. However, we are wondering if the interest rate will likely be higher for a cash out refinance on a property we have already lived in for a year and are about to start renting than the interest rate would have been if we just got a mortgage when we first bought the property. Thoughts?

Thanks!

Candace

[Mason Liu]

So one thing I'll add here is that there are a few situations where paying cash and doing a cash out refinance down the road may make sense. They include:

1) Being able to purchase the property at a cheaper price due to being able to pay in cash. Especially if doing an off market deal where the seller may require that quick close, this can make the difference between a deal happening or not. Even on the MLS, you may be able to negotiate or have your offer stand out with an all cash offer.

2) If you expect rates to be lower in general when you choose to cash-out refinance. This is more speculative, but if you have that belief and are flexible with when you wish to cash out refinance, it may make sense to put the cash up to purchase the property if you don't need the cash now and want to secure a property.