To cash out refinance or not

6 Replies

I have a rented investment single fam condo that has about 60% equity and cash flows about $220/mo. It's in an ARM at year 15 at 5.125% and rising. I'm considering a cash out refi to bring it to about 40% equity or 60% LTV and extend the mortgage to another 30 years at 4.75% fixed and take the cash to use for my first BRRR. Anyone have thoughts on this? Much appreciated.

Beginning BRRR is boston

Hi @Jacob Higginbottom ! This seems like a good positioning move to me.  You can pull cash out AND lock a rate for the next 30-years!  

It will likely reduce your monthly cashflow, but give you cash to deploy into another deal like this.  So, in the end you'll be winning the equity gain, appreciate, AND cashflow games!

@Jacob Higginbottom

From what you have outlined looks like a no brainer.  

Pros

  • You will still have 40% equity
  • Lower your interest rate
  • Most likely increase your monthly cashflow
  • Free up capital for another investment

Cons

  • Not seeing any

I have done a few cashout refinances over the years into 30-year fixed loans and have no regrets. Go for it!

Best of Luck

Scott

    Hi @Jacob Higginbottom -- Good thoughts that others have added. My thought is you might want to pull more money out. If your loan allows "recasting," you can always reduce your monthly payments by making a large payment and ask the bank to recast. The reason I make this suggestion is that going through refinancing is a bit of a pain, and you're not going to want to do it again.

    Also, always shop around and make sure you're getting the best rate and the least amount of closing costs.

    @Jacob Higginbottom

    I would agree with @Dan K. . If you're going to cash out refinance, you should take out the maximum you can - which is likely refinancing at 75% LTV. Some lenders may do 80%, but most will only do up to 75%.

    Refinancing costs are generally fixed, so if you want to refinance again down the line you will have to pay those costs again ($4k to $8k).

    Your mortgage lender will give you the same interest rate whether you're refinancing at 60% LTV or 75%. I also think you can do better than the 4.75% you mentioned above.

    Your money is not doing anything for you tied up as equity in your property. You want to free up as much cash as you can and reinvest at a higher return than you pay in interest, which should be no problem when investing in RE. 

    Generally, 3 family properties perform better than 2 family, so having more cash available to afford a 3 (or 4) family will give you a better return on your BRRRR.

    Eric

    Thank you @Eric Rosiello for summarizing my thoughts so eloquently! I couldn't agree more.

    What we are both saying, is leverage is one of the most important tools in real estate investing. If you area going to "lever up," do it all the way so long as you can put your cash to "work," at a rate that beats your mortgage rate.

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