Advice Needed- should I cash out refi?
I am a newer investor, currently owning one cash flowing townhouse in Tallahassee Florida that I purchased in 2019 with a conventional mortgage. I have not purchased anything since then, as I have been focusing on saving up cash to begin purchasing with the BRRR method (I currently have around 50,000 in liquid capital). I currently owe 60,000 on my mortgage, and have a rate of 4.1%, making my payment $660 a month. My question is; should I do a cash out refinance on this property now, before rates increase more? The largest online mortgage lender(not sure if I'm allowed to say names on here) has offered me a cash out refi with $26,000 in cash, a 4.5% rate, and a new mortgage amount of $97,500. Considering that I could gain $26,000 in cash from this, but get a significantly longer and more expensive mortgage, should I do this ? Would you recommend just setting up a Heloc so I can draw the funds as needed instead?
I forgot to add, the proposed new payment is estimated to be around $730 per month
@Sam Zawatsky there are really no wrong answers here, but I would just warn on being too aggressive. Take it from someone that lost properties due to that (my first 3 rentals, when I was 21 years old, a long time ago). You don't want to scale too fast or get too leveraged. Are we going to have another market correction like in 2009, who knows? But if you had property in FL, AZ and NV and your LTV was 50% or more before it hit, your LTV just went to 100% or worse and that quickly dries up options on reacting to such a market....or survival.
You look like a young guy, you've got a lot of runway in front of you. Maybe you don't need to pull out $$ and increase your interest rate for $26k. Maybe you can just save that this year. Or in two years. This is a get-rich slow game. A marathon in my opinion, hence my conservative recommendation.
Good luck to you.
Thank you @Dave G.
@Sam Zawatsky I would agree with @Dave G. about not being too aggressive. Another option that I would consider is shopping more banks since the bigger lenders are rigid and typically have worse terms and instead of doing a cash out, why not consider refinancing your existing loan at the $60k amount. At a 4% interest your P&I should be $286 on $60k plus tax/insurance. You could roll the closing costs into the loan. So you could reduce your payment per month and save more while not increasing your risk by higher leverage. I use Prime Meridian in Tallahassee as I've never had anyone beat their rates or closing costs. Normally they don't require an appraisal on a refi either.