Cash out Refi- First timer, advice appreciated :-)

14 Replies

Hey BP community- I wanted to post this to get feedback from the more experienced investors out there.  

My wife and I have a 3/2 home located in Flower Mound, TX that we rent out. Value on the home is $275k, and we are fortunate not to have a mortgage on it currently. We bought it 8 years ago for $150k, and it has appreciated extremely well.

With the way that mortgage rates are currently falling, we began the process of doing a cash out refi to pull $150k out of the property to be used for other investments.  However, this is our first time doing this process so we're looking for wisdom/insight to ensure we're not missing anything.  

The new mortgage will mean that we're still cash flowing approx. $500/month on the property, and give us the new capital to use with other investments (we're looking at passive, multifamily syndications).

In my mind, this all makes sense and we're ready to go full steam ahead...but the fear of the first time is a real basically we're just looking for affirmation that it's all going to be ok, haha.

I appreciate any insight, help, downfalls, or reassurance that you can offer. Thank you!

It's only "going to be ok" if you use your 150k wisely and put it towards another cash flowing investment. You'll get the additional tax benefit of the interest on the mortgage being tax deductible, reducing your tax liability. Stay the course and trust the process.

@Ben Wallis , I'm a big proponent of pulling equity out in order to continue to invest in real estate. So I would have no concerns in my situation; however, in your situation, I do not know what you use your rental money for outside of property expenses. So if you use any of that money for personal expenses that maybe a concern. Also, do you manage the property yourself? If so, take into account an additional 10% in case you choose to have a company manage it for you in the future. Additionally, how is the rent for the property compared to the market? What is your vacancy rate? What's your cash reserves? These are some concerns that you may want to think about.

The theory is sound. Success depends on the execution.

As others have already pointed out, what you put those funds towards will ultimately matter most. It sounds as though the refinanced property will hold its own for the most part, so everything comes down to the deal in which you put those funds.

Put that money into a solid cashflow producing asset and you're golden.

Put it into something else and...well... don't. Just don't. :)

Wow, thanks everyone for all the feedback and help!

@Marco Rodriguez - agreed, thank you.

@Joseph H. - thank you!  Will check it out.  

@Corey Chonsky - thanks for asking. Right now we use that money to fund other investments but have just been saving the profits each month. This would allow us to have a big "chunk" to then invest as the right opportunities come along. Yes, we do have a property manager (my W-2 job is Enterprise Sales, so I travel some and also have 4 kids under 7, so life can be a bit nutty sometimes) :-) But the property manager is outstanding, and renting to the demographic that we do has created 0 problems the last 3 years. Have not had a vacancy yet, and when we have turned over it has been filled within weeks. Also, we have $10k in cash reserves, which we feel good about given last year we replaced the A/C, foundation work, etc. Nothing major to replace this year, outside of re-staining a fence.

@Anthony Vicino - so, you don't think we should just plow it all into bitcoin? :-) 

@Ben Wallis

I did 3 cash out refis in the last 8 months and they all went smooth. Like you, my original property I bought 5 years ago was paid off and I wanted to put some of that equity to good use. I took out 146k and paid cash for a property in Grand Prairie which I did a BRRRR on last summer. Then did a cash out on that one after the rehab and tenant put in place, and snagged a great deal on a SFR next to TCU in ft worth for 132k cash. Then did a cash out refi on that a couple months later and snagged a great deal on a SFR in Grand Prairie that I paid for with that cash. So basically I was able to get 3 more SFRs off my original paid off property. And it didn't cost me anything because the bank kept giving me 70-75% cash out of the appraised values and that was plenty of cash I needed to snag these others that are cash flowing. Good luck and I'd say it's a smart move on your part!

Hey @Blake Garcia - on the rental property, I'm getting a 3.625%. Currently, the property is in an LLC so we're going to pull it out of the LLC and then put it back in...I've read some other concerns about piercing the corp vail, and looking back I wish we had not put it into an LLC, but in it is and we'll just roll with it. I've got an umbrella policy, etc. so I'm not worried as much on the liability side. I imagine if the loan was a commercial one it would have a higher rate, right?

I'm also redoing my personal property and have a loan that will be 3.0%, no points on closing costs. If we added a point we could get to 2.75% I believe, but I'm not looking to drop that amount if we don't have to.

@Ben Wallis

Nice! Im refinancing some apartments at 4.35. Beats the hell out of the original 6%. Im also increasing from a 20 year to 25 for cashflow. Its always easier to add extra principle payment than come up short on cashflow. Im shooting for about 4% for next deal.

Larger commercial has been easier for me than juggling multiple house loans. The refi process can actually be easier for commercial with a good lender.

@Blake Garcia

I got 3.875 with one point for my last two cash out refis on 15 year loans. The rates have come way down so I’m sure you can do much better now. Good luck. 

Hey all- just an update, I'm getting a 3.625% on a 30 year cash out refi, closing on the 15th.  Looking forward to using that to add to the portfolio!  Thanks again.