Refinance to take equity out and buy a new property with it?

Question

I bought a property in May 2023 for $289K, putting 30% down and locking in a 6% interest rate. I self-manage it, and my tenants currently pay $2,475/month.

Since purchase, the property has appreciated to an estimated $320K–$350K. I’m considering refinancing with a DSCR loan, which could lower my rate into the mid to high 5% range. A reappraisal at today’s values would let me pull out around $20K in equity, which I could use toward another rental property.

The trade-off is cash flow. Refinancing would reduce my monthly net cash flow to around $200–$280, meaning lower ROI and thinner margins.

My gut says it’s worth it since the additional property could generate more cash flow than I would have without refinancing, but I’d like to hear from others who’ve been in this situation. Has refinancing to scale worked out for you, even at the expense of immediate cash flow

Thoughts?

Erik Estrada · Answer

Hi Nick,

I am curious to know where are you seeing DSCR rates in the 5s? Is this with a buy down?

Mike Grudzien · Answer

Be careful on getting too leveraged.

Patrick Roberts · Answer

This was my immediate thought. Maybe a par rate with a ton of points and borrower paid comp? Will be super expensive.

Tom S. · Answer

@Nicholas A. As mentioned above, I don't see any rates in mid 5's for investment properties currently. But let us know otherwise.

Be sure take into account all costs. Yes, you'll get more cash flow from another property, but if the refinance costs you $5-8k for example, an extra $300 in CF monthly would still take a while for break even.

Pooja Gupta · Answer

Yes, refinance cost or purchasing point is something to watch as it can easily diminish the benefit of lower rate in 2-3 years

Corby Goade · Answer

Making reasonable purchases when you can is always preferable. The chances of you regretting that 10 years from now are almost nil. I built my own portfolio almost exactly the same way you are considering.

Think if every deal you do performs the way that last house did every single year for 20 years and you had 30 of them? Life would be much different.

Best of luck!

Frankie Vozzi · Answer

Nicholas, that’s a great position to be in equity is building fast! Refinancing with a DSCR loan is exactly how many investors scale: you might see a short-term cash flow dip, but it can free up capital for another property that increases overall portfolio cash flow.

I sent you a DM you a few ways we help investors structure this to maximize both cash flow and long-term growth. Let's connect!

Refinance to take equity out and buy a new property with it?

Refinance to take equity out and buy a new property with it?

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