Cash Out Refinance on Primary Residential Property

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Cash Out Refinance on Primary Residential Property

Joe Tran
Real Estate Agent · Vancouver, WA · Member since 2018 · 19 posts · 9 votes

BP Fam,

After all the BRRRing I've been hearing, I've been curious about the benefits (and risks) of a cash out refi on the primary property. Attached is an estimation worksheet that the bank gave me, I'd use the money to invest back into other SFH or multifamily opportunities. My question is how does this look like from a tax sense? Do I pay any taxes or fees other than what's on the worksheet on the equity I take out? What's the risk I'm taking other than prolonging my 30 year conventional loan? Creative thoughts and ideas appreciated!

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  • Patrick Menefee
    Real Estate Coach · Charlotte, NC · Member since 2016 · 399 posts · 341 votes
    7y

    @Joe Tran as a starting point, I’m not a CPA. Just a fellow investor.

    You pay for the money you receive in the form of monthly payments to the bank. You won’t pay taxes on that because it’s just a loan you have to pay back. Any fees should be calculated as a part of closing costs and are likely deducted from the check you’d receive. The only other fee that is likely not applicable is a prepayment fee on your first mortgage...extremely unlikely for a conventional mortgage, but i can’t think of any other fees.

    Your biggest risk factor to consider is your monthly payments. I couldn’t see the whole spreadsheet so i don’t know if it showed the difference between current and future mortgage payments, but I assume if you have $100k equity in the house it’s going to be lower.

    The question is, what is your goal with your current house? Do you plan to stay there, or move and rent it out?

    If you’re going to stay there, can you afford the mortgage increase?

    If you’re going to move out and rent, does your market yield high enough rent to achieve your rental goals?

    All things to consider. Best of luck!

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  • Joe Tran
    OP
    Real Estate Agent · Vancouver, WA · Member since 2018 · 19 posts · 9 votes
    7y

    Patrick, 

    Thanks for the advice on this and yes you're right... I don't have a prepayment fee since it's a traditional conventional mortgage through BoA.  Looks straightforward to me, my monthly payments go from $2,122 to $2,544 for an exchange of $96K for other ventures.  And both scenarios make sense whether the goals make sense to rent or move.  Appreciate the help and the words!

    Happy Weekend,

    Joe T.

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