Refi primary residence for investment for payment

[Sean Starkey]

How many out there have refinanced their primary residence to get a down payment for their investment property? We have had our house since January of 2021. Homes around us are selling for low 900s and we have 647k remaining to pay on a conventional fixed loan. We got a great deal on the house. Do we refinance to get our down payment to start our investment journey who else did?

[Joe Splitrock]

@Sean Starkey you won't be able to refinance any sooner than one year, most likely, but that is only a couple months away. Here are some things to be aware of:

1. You will incur new closing costs for appraisal and loan fees. That will be $2000 or more. They may let you finance into the loan, but it is still an expense.

2. Cash out refinance will probably require you to leave 20% equity in the property. Assuming $900K value, that is $720K loan amount. You are probably looking at around $70K cash out.

3. You will pay higher interest rate than a non-cash out refinance. Maybe 0.125% to 0.5% more.

4. Payment will likely go up, but depends on current rate and terms of course. At 3.8% for 30 years, $70K will cost you $325 per month.

5. Keep in mind that using a financed down payment means your rental property will be essentially 100% financed. You will need to find a good deal to make sure you are not under water each month on payment versus income. Many investment properties do not cash flow when 100% financed.

I am not trying to talk you out of doing this, but make sure you invest that $70K wisely, so it isn't just an extra monthly burden.