My emotions or my math: should I Refinance?

Question

Well I have finally gone through the teeth-pulling exercise of providing a bank with every detail about my life, so I can get another loan to refinance one of my properties (property #1). Now that they have the information they need, we're discussing refinancing MORE properties. Interest rate is 4%, so I'm willing to look at the numbers.

However, I'm finding out it isn't just about the numbers, is it!? My property mentioned above (#1), is an easy decision because I have it with a private lender and need to pay off the loan by October. Urgency drives me to refinance.

Property #2 is a private lender deal that I still have until year 2026 on. Refinancing will save me $11 per month, after closing costs, etc. That's not much of a savings! Plus, it will re-start my 30-year clock. Is it worth it in order to just have the long term (through Year 2050 👽)? Cash flow math doesn't make much of a difference, but peace of mind for long term. My private lender may not love the idea, but can't please everybody, right?!

Property #3, almost the exact same situation, I have a private lender at 4.5%, so the monthly savings are trivial. Benefit is locking a rate through 2050.

Property #4 is on a business loan with a prime-plus-one rate. I think it is 6.5% right now, something like that, and on a 20-year amortization. My monthly payment will go down by $228 on this one. It's a very easy decision.

As often happens, just jotting my thoughts down in the post helps me answer my own question. I do love the idea of long term low rates, inflation-hedging, etc. I think I'll refinance all four. THANKS FOR THE INPUT! LOL

(Cash-out refinance, while appealing, doesn't seem to be as achievable because the rates go up. I could probably only get $10-20k out of each property too.)

Michael Slockers · Answer

Thanks for the advice! I agree, I think a bird in the hand is going to be worth it now. Better not wait for "better" rates when ultimately 4% on investment property is a great rate and allows me to hit all my cash flow metrics with no issue.

Michael Slockers · Answer

Thanks for the post Jairo, but I think I should refi all four of them. To get a loan into 2050 on a long-term hold is worth it, no? Even if it isn't a rate reduction, it is a much better term.

Michael Slockers · Answer

Thanks! But take care of them? Does that mean pay them off and let them go get 9-12% elsewhere? Or do you mean continue on with them since they were kind enough to give me 4%?

These were seller carry-backs I negotiated when I found the properties. I would offer them some amount in cash, or maybe 8k more if they carried a note on it with a small down payment. In other words, these are mostly one-off private lenders.

Michael Slockers · Answer

Very interesting response, very thought-provoking. I have my entire portfolio in Stessa (which is awesome, just as a side-note). It is 10 properties total right now. What clues in your spreadsheet tell you at what time it makes sense to refinance? My earned appreciation isn't insignificant, but I'm also not looking to pull a bunch of equity out. It just isn't needed at this time. Maybe I should run a return-on-equity calculation for each property though...

You say Properties 2&3 are costing me money to refinance. But in fact, as I mentioned, I save a small amount each month be doing a refinance. The gain (and the point of my post) is to get a long-term loan instead of one that only lasts another 5-6 years! In other words, it isn't just about the math...

Thank you!

Corby Goade · Answer

Great advice from Daniel above. For me- buy and hold is all about stability and passivity, so I would refi those PMLs as soon as I could so that I could focus on future deals and let those ones sit there and build equity. In my opinion, you'd be taking a pretty serious risk in waiting to refi any of them- the last few years, money has been ridiculously cheap, who knows what it will cost in a year or five? You KNOW that you're getting a great rate now, whether it's 3% or 5%- historically, those are amazing rates.

Jairo Zapata · Answer

@Michael Slockers hello, you gave out the answer property #1 and #4 are the ones you should refi.

Daniel B. · Answer

@Michael Slockers

Take care of your private lender who gave you a loan in the 4’s.  Typically. 9-12%.

Guifre Mora · Answer

Glad to help... LOL ... I would suggest you do 2 things.

1 put everything in a spreadsheet and see how the entire portfolio performs altogether - at the current rates and when refinancing and see in what year it makes sense to refinance and pull out equity to re-invest. Remember you also have earned appreciation and that needs to be computed.

2 if your goal is to hold and never refinance ever then lock to a lower rate but you have 4 properties, I doubt you will stop there.

Property 1 & 4 are a given to refinance but 2 & 3 it's just costing you money to do so, at a min you need to save 1% in rate.