Need Cashout Refi Order of Operations Advice

[Christopher Nemlich]

Hi All,

I'm a newbie investor looking to purchase a few turnkeys over the next few months. I have enough cash on hand to get started with 4-5, but I wanted to take advantage of current interest rates to cashout refi my primary residence to gain another 80-100k. 

My question here is with regards to the sequencing of these events to ensure I don't screw things up with the lender for the first few properties. My current debt ratio is 23% for reference.

Should I have any concerns about proceeding with the refinance now?

Thanks,

Chris

[Chris Coleman]

@Christopher Nemlich investment property rates are generally .5 - .75 higher than current benchmark rates. With a 800+ credit score and 26% DTI, you should be in good shape.

However, lenders also generally like to 75% LTV on investment property, so that could by why your rate is a little higher.

You should be able to negotiate Rate versus LTV if you want. That is, ask the lender what the rate would be if you went 75% LTV. Then you can decide if its worth it to put down another 5% to lower the rate. It really comes down to the cash flow. If the rate decrease results in realizing substantially more cash flow annually and can make up that 5% fairly quickly, then it may be worth it. But I will say in my experience, on rentals in the $90K - $150K range, that's usually not the case. The difference in your monthly cash flow when comparing a 4.5% and 4.75% interest rate with a 30-year term is just not very much, and usually not enough to warrant putting down that extra 5%. Especially when have to consider Closing Costs as well. So if your lender is willing to 80% LTV on rental properties, then that's probably the way to go.

But again, you can ask your lender, run the numbers, and see what looks best for you.