The bank that holds the loan on my rental property is asking me if I want to refinance. I have approximately $100k equity and am considering a cash out refinance.
Con, the new payments may not be able to be covered by the current rent.
Pro, I would be able to purchase more RE, this new RE would almost certainly offset the loss from the first property.
Thoughts from the community...
This is so often what many people do to leap frog their way into more RE. I haven't found a deal that after I cash out refi due to the increased value continues to cash flow...maybe this is because I haven't found amazing deals, but as long as you run your numbers and use the cash to purchase more RE and are sure you'll still cashflow with the new property, then go for it.
could you refinance for less and keep the cashflow at par?
What is market value for rent? You can't increase rent just because you want to pull all the equity out of the house. As Jeremy suggests, take out what you can that will still allow you to cash flow.
@Theresa Harris this is part of the problem I’m already getting top dollar and there’s still time left on the lease.
@Jeremy Wickens I couldn’t pull enough capital out to make it worth it
$100K in equity would equal $75K in cash out money. What can you do wity $75K in your market? Just because they are trying to sell you debt, doesn't mean that you should do it.
@Anthony Dooly well to be fair if he had a lender that is working with him he could turn 75k into a 300k property with 20% down, but the numbers would have to be good enough to cashflow both properties and that is where I see the issue.
You said, "Con, the new payments may not be able to be covered by the current rent."
I never want to be in a position where I pull more cash out and kill my cash flow and be negative. Some will say BRRRR keep cashing out buying and repeat the process. I see more risk and being out of position. There is a right time to cash out and leverage and a wrong time. Choose carefully you don't want to blow up all the years of hard work over leveraging.
@Zachary Wiederstein what's your return on the equity (ROE) for your rental? If you're making $3,000/yr on that 100k (3% ROE) then it may definitely be a good time to roll that into another property or another investment with better returns.
Also, it depends on your goals. Maybe you don't want to deal with more properties...
Best of luck!