better to just cash out refi later?

Question

Given the current rental property mortgage rate is well above 7.2, and it looks like it is not going to go down any time soon...i expect it will take 3 years to go down by 2 pp...

Is it still dumb to buy a 500k investment property full cash and plan to cashout refi in 2,3 yrs?  still recommend getting some 50% mortgage? thx experts

Devin Peterson · Answer

If you have the CAPITAL, it’s never a bad idea to buy the scale. Waiting can only hurt you. You can refinance and gain back 75% of your value after 90 days. I wouldn’t be so focused on interest rates and more so focused on where you can find a good deal that cash flows and increases your ROI.

Ko Kashiwagi · Answer

Hi Gene,

What is the purpose of the investment - rental or primary residence? You could do a lot with 500k if you use financing, so usually this wouldn't be the fastest way to scale. You can also always put more down to cover risks and refinance into lower rates.

Erik Estrada · Answer

If your goal is to own the property free and clear, then buying it outright can make sense.

If your goal is to scale and grow, you can control a lot of capital with $500k liquid... Don't overlook the big picture.

Christopher Grobaker · Answer

There are cashflowing properties all over AL, GA, MO, OH, MD, PA - we're funding $30 mil a month and 50%-60% of our business is rental loans. Even with rates where they are plenty of people are finding properties. I'm not sure what market you're in but I'd be happy help you look.

Gene Jung · Answer

with such a high mortgage rate, it is very hard to find cash flowing investment even at 40percent down. everyone makes it sound so easy to find something with cashflow, but its not.

Christopher Grobaker · Answer

IMO a little silly to buy 500k all cash when you could spread it out and get cashflow + appreciation + principal paydown. Even with rates where they're at lenders require you to have a certain ratio on the payment of rent vs mortgage. If the ratio is right...then why bother with the rest. Just do a small downpayment and cashflow...rates might take a while to come back down and if they do than you can take advantage of it when they do. In the meantime you'll be acquiring a hard asset for a fraction of the cost that's giving you returns.

Jessie Dillon · Answer

if the numbers work with the current rates, keep buying! but buying with the hope that you can refi on a certain timeline at a certain rate, is a bad idea, if you'd be screwed if the rates don't go where you want, when you want.

Robin Simon · Answer

There are certainly a lot of factors that go into the decision - keep in mind to there are multiple options with no prepayment penalty, so while there will be costs associated with the refinance - a no-prepay-penalty loan to purchase (at low leverage) can make a lot of sense as you can refinance later when rates inevitably come down, but don't have to time/guess when that is

better to just cash out refi later?

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