Rental Refinance - Cash out or lower payment?

[Rachel Zelaya]

Refinance Portfolio...Cash out or Lower Payments?

Hi Fellow investor friends, wanted to get an opinion on which option you all think is better.

We (Husband and I) Currently have several Single family cash flow units we have owned for 3-5 years. All have 20 year mortgages at 5% interest and 5yr ARM. If we do nothing, They will be paid off between 2033-2037. (We will be in our late 40s and early 50s) The current cash flow is $5k/month (after maintenance and vacancy reserves) and are only leveraged at 50-60% of the current market values

Our options are

A. Do nothing, payments may tick up slightly depending on rate adjustment

B. Refinance, cash out about $100k (take home after all closing costs) and keep the monthly payments the same, the leverage would be no more than 75% of today’s value. This would extend the payoff dates another 10 years. The new rate is about 7%

C. Refinance to lower the payment and increase cash flow by about $1300/month. This would extend the payoff dates another 10 years. The new rate is about 7%

D. Do something else we haven’t thought of...?

We live and all our properties are located in the Washington DC metro area, so we have good job growth and economic outlook (however we all know how that can go 🙄)

Curious to hear your thoughts 😊

[Joe Villeneuve]

Here's a problem that you are about to run into...the 5-7 year wear down.  Rental properties have a tendency to "wear down" starting at about 5-7 years.  Add the costs of these wear downs into your options and see how that impacts your decision options.