Cash-out refi on several SFH properties, does it worth it?

[Leon Lee]

Hi, Fellow investors

Some of my SFHs have accumulated some equity over years. I asked about cash-out refi from a loan broker that I have been working with for years and was given the following terms (see attached screencatch). In sum, about $400K equity could be taken out from the refi, reducing the current interest rates ranging from 4% to 4.8% to the new 3.5% for 30 yrs fixed. P&I monthly payment will have $1400 increase in total. and closing costs are around $15K, roughly equivalent to 3.7% of the total cash taken out. My questions are:

(1) Is it worth to refi with the current terms? Are closing costs and/or interests rates too high? My FICO is around 740

(2) Since my debt will increase significantly after the refi, I would assume that leveraging further using the $400K will be more challenging (and risky). What will be a good way to use the equity for good returns. I understand answers will vary vastly, but some thought processes will be really helpful! I am currently W2 employed but planning to retire early. So cash flow will be more critical than passivity of the investment.

Thanks in advance!

Lee
 

[Jaron Walling]

@Leon Lee In my opinion if you want to retire early you'll probably need more cash-flowing assets. The cash-out ReFi only makes sense if you plan to hold these properties for a long time. You're also shielding yourself against market fluctuations. I'd argue it's always worth locking in a lower rate. 3.7% of the total ReFi amount sounds like a no-brainer if you ask me. The amount of free cash you're taking is massive. That cash goes a long way in Atlanta. 

Most economists agree we are due for a correction so having reserves for each property is key. I'd ask yourself what can you do with the $400k? What kind of deal(s) can you find? Are you comfortable leveraging more in 2021? Answer those questions and you'll know if a big refinance makes sense.