Traditional financing, or pull primary equity and pay cash?

5 Replies

Hi BP.  This is my first post.  I have seen a couple questions similar to this but can't find the exact one so I'll go ahead and ask it:

I'm looking at making my second rental purchase for about $60k, which with traditional financing is maybe a $45k loan, $15k down.  Aside from it being difficult to find a lender for so small amount, it being an investment property it comes with a higher interest rate and higher closing costs than if it were for my primary.

Since it is such a small amount I could just refi my primary to pull the cash out (I would end up with about the same interest rate as I currently enjoy), have a lower interest rate and almost no closing costs and pay cash for the investment.  

I don't know why but something feels off about mingling my primary with my investment properties, even though I know the liability and tax is all the same anyway.  The only reason I could really think of not to do the refi is to keep the option open in the future when maybe traditional financing gets harder due to owning more rentals.  Anybody have any other reasons not to or other ideas?

Thanks!

@Jacob Lewis  I personally would finance the investment property as depending on how many properties you have might not be able to cash out refinance if you have more than four mortgages at a later date. Just my thoughts though. Like you said you could always refinance your personal residence down the road and possibly pull more money out of your primary. It really all depends on your goals though. 

Originally posted by @Jerry Padilla :

@Jacob Lewis I personally would finance the investment property as depending on how many properties you have might not be able to cash out refinance if you have more than four mortgages at a later date. Just my thoughts though. Like you said you could always refinance your personal residence down the road and possibly pull more money out of your primary. It really all depends on your goals though. 

 Thanks Jerry!  Goals are to keep collecting these small ~$70k properties, and maybe eventually get into multiple units, but I'm not in any really hurry.

Are you saying I may not be able to cash out refi on my primary if I have more than for mortgages for rentals?

Thanks again.

@Jacob Lewis  you may not be able to cash out on your investment properties if you have more than four financed properties in the future, Unless you have purchased the properties within 6 months. Fannie Mae only allows you to cash out refinance your first four investment properties, unless you qualify for the delayed financing rules. 

https://www.fanniemae.com/content/guide/selling/b2/1.2/03.html

Money is dirt cheap right now.  I'm not doing buy-and-hold at the moment but I already know that in 10 years I'm going to be envious of those of you who are capitalizing on these circumstances.  I'll be desirous of your convertibles, boats, and vacation homes.  I'll say it another way-  Markets are temporary paradigms and right now money is cheap.  

fannie will buy up to 10 mortgages. However, bank policies might still be stuck in the era of 4. I ran into this problem when looking for more cash.

i think it's probably more efficient at these deal sizes to finance at acquisition. Trying to cash out later if and when you get to deal number 4? Come back, and then lets yah about solutions.

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