Cash Out Refi Now or No?

3 Replies

I'm a small investor with a few rental properties. I manage them on my own, including strong vetting of all potential tenants.

Long before coronavirus turned everything upside down, I started the refinance process on 3 of my rentals. I was planning to take some cash out in order to potentially start flipping some properties or simply use the extra cash for the down payment(s) on other buy-and-hold rentals. Now, of course, there is a ton of uncertainty about everything.

I'm still considering the refinance, but if I do it at all, I'll be reducing the total loan amount from what I was considering. I'm also not sure what to do with the extra capital since I am not comfortable buying in the short term. 

My big question now is, should I even do it at all, particularly considering I'm not sure what I'd do with the extra cash. Unless a killer deal comes along I wouldn't buy more real estate. If anything I might wade into stocks as the virus slows, but that, of course, is super risky. 

I'm expecting at least some kind of hit to property values and potentially tightening of credit, but that's always hard to predict.

Knowing this audience you'll want some details, but I'm not comfortable giving all the specific numbers, but here are some generals:

The 3 properties are 2 SFH and 1 duplex, and cash flow is strong (for now). I plan on holding them for the long term.

After I refinance, the total monthly payment would increase between $900-1200/month, but I'd also have an extra $130-180k in cash. (Right now, we don't hold a lot of cash, so it would be nice to have more of a cushion considering current circumstances). The new interest rate would be 4.5% which is about the same as it is now. It's a commercial loan so it would be a 25-year term. 

I'm currently contacting all my tenants to see if anyone has been laid off. So far, everyone is holding down jobs where they can work from home or are otherwise maintaining their income (but that could change). All of the tenants are higher credit/higher income (or have co-signers who are). So, I know some landlords are very scared right now, but I'm not overly concerned about losing rent .... for now. Over the next few weeks/months I think we all know the virus will spread more rapidly and conditions could get dramatically worse for everyone.

So, what would you do here? Should I leave the financing alone or should I take some cash out and give a little cushion and possibly put the money to work elsewhere?

We are currently refinancing our portfolio in order to take advantage of lower interest rates.  In our case we aren't pulling any cash out, but if there is ever a time to have piles of cash sitting around now is it.  To take advantage of crazy deals or to cover your mortgage payments if things really go bad.  Cash is king and even more so in times of uncertainty.

Hello Morgan! I am not sure how your market is going in Richmond, but so far in the Tampa Bay area we are still seeing a sellers market, so prices are still up. I would have to say... without seeing any of the numbers, that if you will gain a lot by refinancing then I would do it, as long as you have somewhere to move it. If you don't like the stocks and don't like the current market prices, then I would say leave it well enough alone. While we are going through an unprecedented corona virus situation, I am telling my investors not to rock the boat and ride out the storm. Once we are past the storm we can then re-evaluate market conditions and mortgage rates and go from there.

Hope that helps and you and your family are staying safe!