Investor · Goodyear, AZ · Member since 2015 · 29 posts · 7 votes
I listened to podcast #393 and liked the idea of 15 properties and refinancing one every year to live off the equity.
I have 3 properties that have significant equity in them. Going to snowball them and pay them off one at a time. First one pays off in 21 months increasing cashflow 346/month. Second one pays off 38 months later increasing cashflow 719/month. Last one 33 months later to finish the job in 7 years 7 months. Sounds great, but leaves me to cover vacancies out of my pocket or slow the payoff anytime vacancies or maintenance comes up.
The other option is to refinance all of these 30 year loans that pay off in 22 to 25 years into a 15 year and cash out 250K. I would pay 5000 per month extra to the loan till my cash was gone. This finishes the loan in 8 years (5 months later, but with a big chunk of cash in my account for the first couple of years).
Anyone have an opinion or reason one way is better than the other? Interest rate on the 15 year would be lower, than the weighted average of the current three loans, but really not much difference in interest paid since the term is so short.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
6y
@Russell Fugitt
Depends on your goals
I figure refinance to get the lower rates. Probably refi to 30 yr loan but pay off like a 15yr. Gives you flexibility in case life throws you a curve ball and run short on cash flow temporarily. Also, helpsnproetect your dti to service more debt as necessary.
Meanwhile, if you are going to cash out refi but pay the loans back at an accelerated pace, why bother cashing out? Why pay to borrow money and pay interest while you have the loan out? That’s just an example of the friction of money.
I believe the idea of the refi is to access the equity to be able to use the funds for something else. Accelerating your payments is a methodology to get you out of debt and enjoy your property free and clear and all the extra cash flow that comes without the debt. Otherwise, it sounds like you are just churning funds every 8 years according to your plan.
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
6y
There has been discussion about the future interest rates. Fed is printing a lot of money. Rates to stay low for years? Or a spike in interest rates? If you think the latter, refinance and get a fixed term as long as you can. Investment properties rarely often 30 year fixed terms.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
6y
@Russell Fugitt
Depends on your goals
I figure refinance to get the lower rates. Probably refi to 30 yr loan but pay off like a 15yr. Gives you flexibility in case life throws you a curve ball and run short on cash flow temporarily. Also, helpsnproetect your dti to service more debt as necessary.
Meanwhile, if you are going to cash out refi but pay the loans back at an accelerated pace, why bother cashing out? Why pay to borrow money and pay interest while you have the loan out? That’s just an example of the friction of money.
I believe the idea of the refi is to access the equity to be able to use the funds for something else. Accelerating your payments is a methodology to get you out of debt and enjoy your property free and clear and all the extra cash flow that comes without the debt. Otherwise, it sounds like you are just churning funds every 8 years according to your plan.
Investor · San Antonio, TX · Member since 2016 · 42 posts · 25 votes
6y
@Russell Fugitt Definitely consider your goals and I agree with @David M. on the general perspective to get a loan for 30 years and plan and budget to pay off in 15 to give you a buffer of the curveballs that may come your way. I think the biggest thing is to make sure you have the reserves you need and the capital to expand to add other properties as your want to.
@David M. Thanks everyone for your replies. I think my goals are the question here. They seem to be shifting by the day (probably not a very good practice).
I like the cashflow I currently get, but don't necessarily need it. I would like the lump sum in the bank, but don't need it there either unless I find another investment to fund or get furloughed from my normal job. I think I will take my chances on the furlough, plan to use other funds for any investment and accelerate these current loans with the cashflow I get. I can always stop that at any time if I need to.
Check back tomorrow and I might have changed my mind again.
Kansas City, KS · Member since 2019 · 58 posts · 66 votes
6y
@Russell Fugitt I like listening to the podcasts for insight and ideas. I know I can’t implement all of the ideas, but rather, I listen for motivation and to keep going. Stick to one style of investing and get great vs bouncing around with each new idea.
Yes, your personal goals are the answer to the question I believe. Also risk appetite.
IF you plan on buying other investment properties, use the money for that. I agree with David that there is no point paying down the mortgages quickly, if you are going to refinance them. You want to pay them off, so you have extra cash flow coming in...and if you don't plan on buying any more. If you want to buy more, your extra money goes towards that.