As a new investor, I'm reading a lot about lending but I don't fully understand the concept of refis. I often hear people here say something like "...then I'll refinance to keep my investments rolling."
1) When people say that are they typically talking about cash out refis?
2) Do refis count as one of your "4" mortgages that banks will let you have at once?
3) Does a refi benefit me at all if there's no rehab or appreciation involved, or is it only relevant if there is a rehab or appreciation? Say I purchase a move-in ready house for $100k putting 20% down, and there isn't any appreciation for the foreseeable future. How does refinancing at any point help "keep my investments rolling"?
search "BRRR" on the forums. It is the buzz word used for the strategy you are looking for more clarification on.
hi jeff. here is the simplistic education on your question. lets say you bought a house for $10,000. fixed it up, and refinanced it for $20,000. you have replenished your original investment of $10k and put $10k into your pocket. you now have $20k for the next project. by the way, that additional $10k is tax free and what is known as OPM ( other peoples money). you now buy another house for the $20k you have, presumably a better house, fix that up and refinance it for $30k. you now have an additional $10k in your pocket to continue the process. sure, if you had to borrow the initial $10k to get started, you have to pay that back, but you still have $10k to work with that you did not have before. if you hold onto the the initial house and rent it, someone else is making your payments on the $20k you borrowed, so your next project is being done with OPM. its the snowball effect
So from Michael and Mark's replies, am I correct in saying that rehabbing is a required element for refinancing to benefit you at all?
Yes, for our strategy the rehab is probably the biggest part.
One thing I would like to add is that you need to be sure the rehab has added enough value to your house to make it worth while. The lender is going to charge to have the house appraised and a new set of closing costs and in my experience still only offer you 80% of the value. Maybe someone else has a good lender but I looked into it on my first house that I did and was kind of disappointed. If there is another way Id love to hear it!
Here is information on cash out financing.
1. They can be talking about cash out refinancing or rate and term refinancing.
2. A refinance - rate and term or cash out is going to replace your previous mortgage, leaving you with the same number.
3. For a cash out refinance - yes you need equity to be ale to take out. It could be a rehab or appreciation. For a rate and term refinance.... You will have had to pay down your mortgage balance and extend your term or decrease your rate to make a difference. This is a great way to go when you have maxed out your DTI's.
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