Refinance a paid off house?
Member since 2022 · 5 posts · 2 votes
Refinance a paid off house?
Most Popular Reply
Investor · Omaha, NE · Member since 2021 · 244 posts · 163 votes
3y@Arthur Nogueira What Bill said is correct, you can do a cash out refinance on a fully paid-off house. Go to your local bank/credit union and ask them for the same. Typically, they can give you the lowest rates
However, another option that may be more beneficial is getting a LOC (line of credit) secured by the paid-off house. Unlike a cash-out refinance, you pay for the funds as you go and it functions as a credit card (rather than a mortgage), giving you more flexibility over the funds secured via your house and is potentially cheaper than a mortgage since it is not amortized. Additionally, this will be easier to get than a mortgage in this case since this LOC is in first position
28 Replies
- Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes3y
Yes. It’s even Called a cashout refinance, even though you aren’t refinancing, since it’s paid off. Some banks want you to wait 6 months, others have exceptions specifically allowing you to do it before 6 are months up. Ask your lender what their options are for you.
- Investor · Omaha, NE · Member since 2021 · 244 posts · 163 votes3y
@Arthur Nogueira What Bill said is correct, you can do a cash out refinance on a fully paid-off house. Go to your local bank/credit union and ask them for the same. Typically, they can give you the lowest rates
However, another option that may be more beneficial is getting a LOC (line of credit) secured by the paid-off house. Unlike a cash-out refinance, you pay for the funds as you go and it functions as a credit card (rather than a mortgage), giving you more flexibility over the funds secured via your house and is potentially cheaper than a mortgage since it is not amortized. Additionally, this will be easier to get than a mortgage in this case since this LOC is in first position
- Member since 2022 · 5 posts · 2 votes3y
Quote from @Bill B.:
Yes. It’s even Called a cashout refinance, even though you aren’t refinancing, since it’s paid off. Some banks want you to wait 6 months, others have exceptions specifically allowing you to do it before 6 are months up. Ask your lender what their options are for you.
thank you gentlemen
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes3y
Quote from @Arthur Nogueira:
Let’s say I bought a house cash. I rehabbed the house and I’m the property is now rented. Can I do a cash out refinance? If so, how does happen? Thank you
Technically no since there's no loan to refi, but after 6 months you can get an equity loan.
'Cashout refi' will confuse your lender and cost you more. I like to self encumber so I have a chance to do a rate/term refi. Cheapest.
- Member since 2022 · 5 posts · 2 votes3y
Quote from @Steve Vaughan:
Quote from @Arthur Nogueira:
Let’s say I bought a house cash. I rehabbed the house and I’m the property is now rented. Can I do a cash out refinance? If so, how does happen? Thank you
Technically no since there's no loan to refi, but after 6 months you can get an equity loan.
'Cashout refi' will confuse your lender and cost you more. I like to self encumber so I have a chance to do a rate/term refi. Cheapest.
Thank you Steve
- 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Arthur Nogueira
I just did this. My cash flow was only $1200/month with my paid off rental. I did a cash out refi on it and bought 3 houses with the cash. Now my total cashflow is $3500/month and I picked up 3 houses basically for free, not costing me any money out of pocket. I actually had about 30k left over that I didn’t use. I’m a fan of using equity just sitting there doing anything for me.
- Member since 2022 · 5 posts · 2 votes3y
Quote from @John Morgan:
@Arthur Nogueira
I just did this. My cash flow was only $1200/month with my paid off rental. I did a cash out refi on it and bought 3 houses with the cash. Now my total cashflow is $3500/month and I picked up 3 houses basically for free, not costing me any money out of pocket. I actually had about 30k left over that I didn’t use. I’m a fan of using equity just sitting there doing anything for me.
That’s a great testimony and encouragement. Thank you for sharing it
- Investor · Central Virginia · Member since 2020 · 393 posts · 253 votes3y
I believe so. But there is a timeline and an appraisal that need to be done I think. Talk with a lender and they will be able to give you a better understanding.
- Investor · Central Virginia · Member since 2020 · 393 posts · 253 votes3y
Quote from @John Morgan:
@Arthur Nogueira
I just did this. My cash flow was only $1200/month with my paid off rental. I did a cash out refi on it and bought 3 houses with the cash. Now my total cashflow is $3500/month and I picked up 3 houses basically for free, not costing me any money out of pocket. I actually had about 30k left over that I didn’t use. I’m a fan of using equity just sitting there doing anything for me.
What was the total cash into the original home?
- 3yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Arthur Nogueira:
Let’s say I bought a house cash. I rehabbed the house and I’m the property is now rented. Can I do a cash out refinance? If so, how does happen? Thank you
You can do a standard cash out refinance and wait 3 months once the rehab is completed. You can also do a 2 year bridge loan without the 3 month seasoning requirement needed and can lend up to 80% LTV.
LuxePrivate Investments LLC 572 Reviews - 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
Quote from @Chris Webb:
Quote from @John Morgan:
@Arthur Nogueira
I just did this. My cash flow was only $1200/month with my paid off rental. I did a cash out refi on it and bought 3 houses with the cash. Now my total cashflow is $3500/month and I picked up 3 houses basically for free, not costing me any money out of pocket. I actually had about 30k left over that I didn’t use. I’m a fan of using equity just sitting there doing anything for me.
What was the total cash into the original home?
I was all in for 100k. Bought it with a 401k loan for 48k. Lol. Then spent 50k on the rehab I got from 0% interest rate credit cards for a year.
- Investor · Central Virginia · Member since 2020 · 393 posts · 253 votes3yOne aspect that you bring into this discussion is time. Originally your CoC return was roughly 14% (14,400/100,000) then it jumps to roughly 42% at the new level. Recycling cash is the strategy to use and in order to do this, you have to give it time.
Quote from @John Morgan:
Quote from @Chris Webb:
Quote from @John Morgan:
@Arthur Nogueira
Now my total cashflow is $3500/month and I picked up 3 houses basically for free, not costing me any money out of pocket. I actually had about 30k left over that I didn’t use. I’m a fan of using equity just sitting there doing anything for me.
What was the total cash into the original home?
I was all in for 100k. Bought it with a 401k loan for 48k. Lol. Then spent 50k on the rehab I got from 0% interest rate credit cards for a year.
- Member since 2022 · 13 posts · 5 votes3y
Quote from @Arthur Nogueira:
Let’s say I bought a house cash. I rehabbed the house and I’m the property is now rented. Can I do a cash out refinance? If so, how does happen? Thank you
I've had this same question the last few days as I figure out next steps. Have done some Googling, but glad you asked. Following!
@John Morgan Sounds like you made it happen. I'm still learning all the numbers and don't understand how you basically got the money free and clear. Is it that the 1200/month original cash flow is now paying down the refi, and then tenants on the other 3 properties are paying down those loans?
Thanks!
- 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votesI paid cash for a house with a 401k loan 4 years ago. The monthly cash flow was $1200 after all my expenses. Not bad, but I wanted to use the equity in this free and clear house to make more than just $1200/month. So I did a cash out refi on it to pull out equity to buy 3 more properties from the cash I pulled out tax free of course. I bought 3 rentals in the last 3 months from the cash I pulled out. My total cash flow went from $1200/month off that one ho Se to mow $3500/month by doing this. And I just gained an extra 3 houses that my new tenants are paying off for me. This is how I use good debt to scale up and bring more cash flow in.
Quote from @Beck H.:
Quote from @Arthur Nogueira:
Let’s say I bought a house cash. I rehabbed the house and I’m the property is now rented. Can I do a cash out refinance? If so, how does happen? Thank you
I've had this same question the last few days as I figure out next steps. Have done some Googling, but glad you asked. Following!
@John Morgan Sounds like you made it happen. I'm still learning all the numbers and don't understand how you basically got the money free and clear. Is it that the 1200/month original cash flow is now paying down the refi, and then tenants on the other 3 properties are paying down those loans?
Thanks!
- Rental Property Investor · Upper Michigan · Member since 2019 · 19 posts · 6 votes3y
I did exactly that, last year.
I paid off a $35k land contract home, then used it as collateral for a loan to buy an 6 unit apartment building and triplex (commercial blanket loan). I think I paid $1200 in closing costs out of pocket.
Just head down to the bank and tell them that you would like to do something like that, then ask for a few options.
- Member since 2023 · 24 posts · 12 votes2y
Quote from @John Morgan:
@Arthur Nogueira
I just did this. My cash flow was only $1200/month with my paid off rental. I did a cash out refi on it and bought 3 houses with the cash. Now my total cashflow is $3500/month and I picked up 3 houses basically for free, not costing me any money out of pocket. I actually had about 30k left over that I didn’t use. I’m a fan of using equity just sitting there doing anything for me.
Hey John
You def answered my questions!!I have a paid off house but have never thinking about using the equity to scale up.
Just wondering would you need to worry about the debt-to-income ratio and how do you consider the risk of scaling up so fast (3 houses at once)？
Thanks! - 2yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votesI’ve done 4 cash out refis. Each time I did one, I bought 3 houses each time with the cash. Yes, the lenders looked at my DTI and I was able to do the first 3 cash outs with conventional loans. I did the last one with a commercial loan. You can also do them with DSCR loans where your DTI doesn’t matter. They’ll fund you as long as they cash flow. My cash flow went up quite a bit after each cash out and using that equity. Plus, now I have an extra 12 houses appreciating 5%/year or whatever and tenants paying them off. And these 12 houses didn’t cost me a penny out of pocket to acquire. Maybe I’ll pull equity out of them in 5-10 years and buy more if I’m bored. This is how I’ve scaled up and created good cash flow without using any of my money for 20% down payments on buying new houses. It’s the cheap way to do it! lol
Quote from @Elsa Hsu:
Quote from @John Morgan:
@Arthur Nogueira
I just did this. My cash flow was only $1200/month with my paid off rental. I did a cash out refi on it and bought 3 houses with the cash. Now my total cashflow is $3500/month and I picked up 3 houses basically for free, not costing me any money out of pocket. I actually had about 30k left over that I didn’t use. I’m a fan of using equity just sitting there doing anything for me.
Hey John
You def answered my questions!!I have a paid off house but have never thinking about using the equity to scale up.
Just wondering would you need to worry about the debt-to-income ratio and how do you consider the risk of scaling up so fast (3 houses at once)？
Thanks! - Property Manager · Charlotte, NC · Member since 2022 · 138 posts · 87 votes2y
- Member since 2021 · 53 posts · 26 votes2y
Quote from @John Morgan:
I paid cash for a house with a 401k loan 4 years ago. The monthly cash flow was $1200 after all my expenses. Not bad, but I wanted to use the equity in this free and clear house to make more than just $1200/month. So I did a cash out refi on it to pull out equity to buy 3 more properties from the cash I pulled out tax free of course. I bought 3 rentals in the last 3 months from the cash I pulled out. My total cash flow went from $1200/month off that one ho Se to mow $3500/month by doing this. And I just gained an extra 3 houses that my new tenants are paying off for me. This is how I use good debt to scale up and bring more cash flow in.Quote from @Beck H.:
Quote from @Arthur Nogueira:
Let’s say I bought a house cash. I rehabbed the house and I’m the property is now rented. Can I do a cash out refinance? If so, how does happen? Thank you
I've had this same question the last few days as I figure out next steps. Have done some Googling, but glad you asked. Following!
@John Morgan Sounds like you made it happen. I'm still learning all the numbers and don't understand how you basically got the money free and clear. Is it that the 1200/month original cash flow is now paying down the refi, and then tenants on the other 3 properties are paying down those loans?
Thanks!
Does this strategy generally only work with relatively cheap houses - say less than $200k? Are you counting/saving for future capex out of that cashflow? Not saying you did, but often people love to quote the cashflow but conveniently leave out capex, which can be considerable on a bunch of individual houses.
I’m just asking because I’m trying to do something similar with a paid off $400k condo property. At today’s rates I could get $200k out and the condo rent would pay for that new mortgage.
So then where can I put the $200k and do better than what I was getting with no mortgage? Was netting $18k/year. - 2yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
Most of my houses are around 200-250k. My numbers don’t include cap ex, maintenance or vacancies. My net cash flow is plenty (16k/month) so I can afford to replace a 7k HVAC or 9k roof if necessary. I’ve been living off my W2 so I don’t depend on my rental income. I’ve been using my rental income to pay myself back from my initial properties and all the 401k loans and zero % interest credit card loans I’ve take out to buy real estate. It’s not a strategy for everyone but it works for me. I’ve paid myself back every penny I’ve put into real estate, so all my cash flow from here on out is infinite.
- 2yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Bryan Harvey
I’ve done 6 cash out refis on rentals to use that cash to scale up and buy more and more rentals for free (no out of pocket cash for new purchases). I use the cash from the cash outs to buy the new properties which don’t cost me a penny out of pocket.
For example, my last cash out refi was about a year ago on a paid off rental I bought with a 401k loan. I was making $1200/month net after all my expenses before the cash out. My lender gave me back 168k cash after all closing costs. I used that cash to buy 3 more properties. And my cash flow after all my expenses on my original house and the 3 new ones is $3400/month now. So I basically picked up 3 new houses without a penny out of pocket and increased my cash flow from $1200/month to $3400/month. I’ve got mortgages on all of them which my tenants are paying off for me. And now I have appreciation of 5%/year on 4 houses vs just my one paid off house. That adds up! And in 3-5 years, I’ll repeat and pull equity out to buy more and more houses for free like this.
- 2yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Bryan Harvey
I would take that 200k and buy as many SFR with 20% down as you can. In my area (Dallas), I could buy 3 or 4 decent SFR homes in the 200k range that cash flow around $1700-$2000/month total with 4 houses. That might not be a lot, but as market rent and appreciation comes up good in 3-5 years, these properties will look like home runs.
- Member since 2021 · 53 posts · 26 votes2y
Quote from @John Morgan:
@Bryan Harvey
I would take that 200k and buy as many SFR with 20% down as you can. In my area (Dallas), I could buy 3 or 4 decent SFR homes in the 200k range that cash flow around $1700-$2000/month total with 4 houses. That might not be a lot, but as market rent and appreciation comes up good in 3-5 years, these properties will look like home
All sounds good, but…Does this still compute at today’s rates? Prior to last year was a whole ‘nother ballgame as I’m sure you know. Do you have a property manager? How do you handle vacancies? I think I know the answer, but doing this out of state is also a whole different ballgame in terms of cost/return viability.
- 2yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votesYeah, if the numbers don’t cash flow then wait until you find another deal. It’s hard to find good deals now with these high interest rates. However. I still bought 7 SFR in the last 11 months so I’m dealing with the same problems. 5 of them are out of state. I self manage 24 and it’s pretty easy. I just text handymen or whoever to go fix things when they break, then cash app or zelle them $. I’m lazy and like to keep things easy. lol. I rarely have vacancies. I treat my tenants well and have them in there under market rent so it’s very rare I have a vacancy. Turnovers will crush profits and they’re a headache so I keep my people in 10-15% under market rent. I also focus on affordable C class housing. These properties are always in highest demand and seem to appreciate much better because builders are only building high end homes. This low inventory will be here for a decade or two since builders won’t build cheaper end homes. And these tenants will never be able to afford or qualify to buy a home of their own. So I hope they stay years/decades with me if I provide them a good affordable place for them to live.
Quote from @Bryan H.:
Quote from @John Morgan:
@Bryan Harvey
I would take that 200k and buy as many SFR with 20% down as you can. In my area (Dallas), I could buy 3 or 4 decent SFR homes in the 200k range that cash flow around $1700-$2000/month total with 4 houses. That might not be a lot, but as market rent and appreciation comes up good in 3-5 years, these properties will look like home
All sounds good, but…Does this still compute at today’s rates? Prior to last year was a whole ‘nother ballgame as I’m sure you know. Do you have a property manager? How do you handle vacancies? I think I know the answer, but doing this out of state is also a whole different ballgame in terms of cost/return viability.
- Lender · Member since 2022 · 12 posts · 8 votes2y
You definitely can do a cash out on your property, either into a bridge program or possibly a DSCR loan as well if you plan to hold it for several years at minimum as there are usually prepayment penalties there.
Happy to take a closer look at your specific property and discuss further what options you may have to use your equity to put cash back in your pocket for future investments.
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