Refi Cashout - Make Sense for this?

Question

I am trying to do refi with cashout for 4 properties and thinking of using the cashout to payoff the fifth property. Looking for thoughts/advice from BP experienced folks. Am trying to gauge if it makes sense to proceed or keep as is.

• Average ARV of properties: 140K-180K
• Current Loan Interest rates: 4%
• 
• Refi Scenario
• Total Refi Cash amount: 68000 (Avg: 17K per property)
• Closing Cost that I will pay: 32600 (Avg: 8K per property)
• Monthly Payments: Total remains almost same due to lower interest rates

• Fifth property that I'll payoff may result in additional $400 per month cashflow.

I notice all the loan amount getting increased by almost 7K more than what I'm getting cashout amount.

Does it make sense to proceed with Refi cashout for these properties? OR should I just keep this as is and wait further? I want to take benefit of low interest rate but the 8-9K increase in loan amount plus additional charges about appraisals, etc is making me worry if I should go ahead or not.

Thoughts and comments are welcomed.

Chris Svendsen · Answer

To me seems like to many fees for little return.  What about getting HELOC's on the properties and have that available if needed.  I got an 85k HELOC on our first property, used that to buy 2 more properties and for first 10 years payment is interest only.  Right now have used all 85k and only cost me $365 a month.  Plus closing cost on heloc was only $125 and cost of appraisal.

Chris Svendsen · Answer

I used PenFed to do my HELOC on the investment property. It was super simple no fees other than the appraisal and a small processing fee. It is credit that's available to you so I'm sure in some ways it will work against you as any other line of credit however as of right now it is causing me no issues. I'll find out when I go to do a refi on the current property I'm renovating because now I've used up all the line of credit it is possible it could cause an issue but at the same time I'll be explaining to them that I'm also going to be used the refi to pay off that line of credit so it may not be a problem. I just kind of use it as a revolving piggy bank.

Giancarlo Orozco · Answer

@Arijit De

I feel like the closing costs are cutting too much into your liquid. Shop for lower closing cost rates, consider a HELOC, or wait some time and let the equity build.

Timothy Hero · Answer

From what I'm gathering, you're refinancing 4 properties, with an average value of $160k. If we assume you're doing 75% LTV on each, that's $480k in financing. $32k in fees is around 7%. The industry average is 3-5% in closing costs. Are you doing a buy down for a better rate?

Eric Johnson · Answer

@Timothy Hero has a good point, you should look at the benefit of the cash-out funds, as a comparison to ROI where you are now, and where you would be if you did this refi and paid off a property (the +$400/mo or w/e). Would buying another property with the funds result in a higher total ROI for you instead?

Joseph H. · Answer

So you are paying almost half of your cash out in closing costs? That doesn’t make sense to me.

Chris Svendsen · Answer

I hope it helps.  Good luck.

Arijit De · Answer

Got it. Thanks for the detailed info @Chris Svendsen

Chris Svendsen · Answer

Oh one thing to consider right now with he locks and other lines of credit maybe harder to attain as an investor. I opened this line of credit 2 years ago in anticipation of market conditions changing and I wanted to have cash available. Right now many lenders have put a freeze on this type of Lending. Also take a look at your closing statements for those refi there is a possibility that you're getting charged a fee because they're backed by Freddie Mac or Fannie Mae. If they're under $100,000 at times there are certain fees based off the price that you're financing that you cannot get rid of. I dealt with this on a house I bought in Pennsylvania that was only $80,000.

Arijit De · Answer

Thanks @Giancarlo Orozco. Any suggestions on good HELOC lenders?

@Chris Svendsen From which lender did you do the HELOC? Any contacts I can use to check?

Refi Cashout - Make Sense for this?

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