Rental Property Investor · Virginia Beach, VA (Virginia Beach) · Member since 2019 · 173 posts · 129 votes
6y
@Jasraj Singh Refinancing in simple terms is just getting a new loan. Typically as it relates to rental properties people refinance for one of two reasons.
Loan Restructure. If your initial loan was not under the best terms I.E. higher than current interest rate, payment to high. If rates have dropped significantly since you first borrowed or your specific circumstances have changed you can refinance into a better loan or longer/shorter term in order to better capitalize or more easily afford the loan.
Cash Out. If you have made improvements to the property to increase its value, the property has appreciated significantly, or you have built up a good bit of equity through pay down you can refinance the loan and pull out the equity you have built in cash. The cash you pull out is tax free since it is debt and not income, and this allows you to re-invest in more property or simply put cash in your pocket. You are able to pull out your initial investment and leverage your cash to work in more than one place (your initial investment continues to make income while you re-invest the cash somewhere else.)
In either case you need to weigh the cost of financing against the reward in some cases refinancing does not benefit you but if done correctly it is a powerful tool to increase your investment capital and reach.
Rental Property Investor · Chubbuck, ID · Member since 2018 · 532 posts · 466 votes
6y
a refinance is a new loan. It pays off the old loan and the terms and you get a new loan at current market rates with new term. There are two benefits to refinancing: better terms like a lower interest rate or changing the number or payments, and getting cash out of a property that has a lot of equity to purchase another cash flowing property.
Rental Property Investor · Virginia Beach, VA (Virginia Beach) · Member since 2019 · 173 posts · 129 votes
6y
@Jasraj Singh Refinancing in simple terms is just getting a new loan. Typically as it relates to rental properties people refinance for one of two reasons.
Loan Restructure. If your initial loan was not under the best terms I.E. higher than current interest rate, payment to high. If rates have dropped significantly since you first borrowed or your specific circumstances have changed you can refinance into a better loan or longer/shorter term in order to better capitalize or more easily afford the loan.
Cash Out. If you have made improvements to the property to increase its value, the property has appreciated significantly, or you have built up a good bit of equity through pay down you can refinance the loan and pull out the equity you have built in cash. The cash you pull out is tax free since it is debt and not income, and this allows you to re-invest in more property or simply put cash in your pocket. You are able to pull out your initial investment and leverage your cash to work in more than one place (your initial investment continues to make income while you re-invest the cash somewhere else.)
In either case you need to weigh the cost of financing against the reward in some cases refinancing does not benefit you but if done correctly it is a powerful tool to increase your investment capital and reach.
a refinance is a new loan. It pays off the old loan and the terms and you get a new loan at current market rates with new term. There are two benefits to refinancing: better terms like a lower interest rate or changing the number or payments, and getting cash out of a property that has a lot of equity to purchase another cash flowing property.
yea right! its the same but can't we have another mortgage instead?
@Jasraj Singh Refinancing in simple terms is just getting a new loan. Typically as it relates to rental properties people refinance for one of two reasons.
Loan Restructure. If your initial loan was not under the best terms I.E. higher than current interest rate, payment to high. If rates have dropped significantly since you first borrowed or your specific circumstances have changed you can refinance into a better loan or longer/shorter term in order to better capitalize or more easily afford the loan.
Cash Out. If you have made improvements to the property to increase its value, the property has appreciated significantly, or you have built up a good bit of equity through pay down you can refinance the loan and pull out the equity you have built in cash. The cash you pull out is tax free since it is debt and not income, and this allows you to re-invest in more property or simply put cash in your pocket. You are able to pull out your initial investment and leverage your cash to work in more than one place (your initial investment continues to make income while you re-invest the cash somewhere else.)
In either case you need to weigh the cost of financing against the reward in some cases refinancing does not benefit you but if done correctly it is a powerful tool to increase your investment capital and reach.
completely! I was rereading all the comments and got a little confused but can't we just take another mortgage instead as my house as a collateral?
There are basically three options, I am not sure what you mean by another mortgage.
1st is the refinance we spoke about earlier, probably the best in my opinion as you still have just one payment and you can pull out your equity in cash
2nd would be a second mortgage on the property this would also allow you to borrow against any equity you have but would mean two payments, with two different loans. I don’t particularly like this method as you will have to track two separate loans. As you grow if you continue to use this approach it will be tough to manage. Also many financial institutions will limit the number of loans you can have at any given time and now you have two loans tied up in one property.
3rd would be what I think you are alluding to, taking out a second mortgage on your primary residence to get cash in hand for your investment property. This is by far my least favorite as you are using equity in your personal home to finance your investment property. This essentially ties your home to your investment and could put both at risk if you run into problems with the investment property.
Another option is to pay off the loan on the property completely, and then open a new mortgage. This at least to me seems counter intuitive as you will have to put your cash in to close the first mortgage then finance to get it back out. This is essentially the same thing as refinancing as stated in the 1st option however it would be handled in two separate transactions and would require you to move around a lot of money, whereas the refi (still two transactions) the refinance proceeds pay the original loan and the rest goes to you it is all done at the same table at the same time.
There are basically three options, I am not sure what you mean by another mortgage.
1st is the refinance we spoke about earlier, probably the best in my opinion as you still have just one payment and you can pull out your equity in cash
2nd would be a second mortgage on the property this would also allow you to borrow against any equity you have but would mean two payments, with two different loans. I don’t particularly like this method as you will have to track two separate loans. As you grow if you continue to use this approach it will be tough to manage. Also many financial institutions will limit the number of loans you can have at any given time and now you have two loans tied up in one property.
3rd would be what I think you are alluding to, taking out a second mortgage on your primary residence to get cash in hand for your investment property. This is by far my least favorite as you are using equity in your personal home to finance your investment property. This essentially ties your home to your investment and could put both at risk if you run into problems with the investment property.
Another option is to pay off the loan on the property completely, and then open a new mortgage. This at least to me seems counter intuitive as you will have to put your cash in to close the first mortgage then finance to get it back out. This is essentially the same thing as refinancing as stated in the 1st option however it would be handled in two separate transactions and would require you to move around a lot of money, whereas the refi (still two transactions) the refinance proceeds pay the original loan and the rest goes to you it is all done at the same table at the same time.
thank you man! thanks for clearing I was a little confused before. So you mean cash out refinance is better?
Rental Property Investor · Virginia Beach, VA (Virginia Beach) · Member since 2019 · 173 posts · 129 votes
6y
@Jasraj Singh Yes in my opinion it is a simpler process and at teh end of it you still only have one loan/payment to track, as long as teh equity in the building supports what you need out of it you will have little out of pocket expense.
Your best bet is to sit down with a lender and walk through all your options and see which one fits your situation and circumstance the best. In my experience the cash out Refi has always made the most sense.
There are a number of blogs/posts on the BRRRR method, which takes advantage of the cash back refi and Bigger pockets also wrote a book on the subject (also available on audio book) the book does a great job of breaking down the pros and cons and walking you through the process. What you are doing may not be the BRRRR method of investing however the finance portion is the same.
@Jasraj Singh Yes in my opinion it is a simpler process and at teh end of it you still only have one loan/payment to track, as long as teh equity in the building supports what you need out of it you will have little out of pocket expense.
Your best bet is to sit down with a lender and walk through all your options and see which one fits your situation and circumstance the best. In my experience the cash out Refi has always made the most sense.
There are a number of blogs/posts on the BRRRR method, which takes advantage of the cash back refi and Bigger pockets also wrote a book on the subject (also available on audio book) the book does a great job of breaking down the pros and cons and walking you through the process. What you are doing may not be the BRRRR method of investing however the finance portion is the same.
thanks a lot my friend! I'm thinking of investing in the U.S so can you tell me an affordable city in which I could invest in a low budget for starting?
Rental Property Investor · Virginia Beach, VA (Virginia Beach) · Member since 2019 · 173 posts · 129 votes
6y
@Jasraj Singh I invest pretty much exclusively on the east coast, however the market here is not cheap. I cant really speak for much outside of there. I know that a lot of folks look to the Midwest for affordability. Its all relative however you can find a deal anywhere just have to look for them, as long as the numbers work then the starting point and ending point are relative numbers.
As long as the deal supports the return on investment you are looking for there is always a way to make it work. Long distance investing is tough but not impossible, one of my partners mentors invest here from halfway around the world, and has been quite successful at it, we have learned alot from him, more then we have learned from guys right nextdoor.
@Jasraj Singh I invest pretty much exclusively on the east coast, however the market here is not cheap. I cant really speak for much outside of there. I know that a lot of folks look to the Midwest for affordability. Its all relative however you can find a deal anywhere just have to look for them, as long as the numbers work then the starting point and ending point are relative numbers.
As long as the deal supports the return on investment you are looking for there is always a way to make it work. Long distance investing is tough but not impossible, one of my partners mentors invest here from halfway around the world, and has been quite successful at it, we have learned alot from him, more then we have learned from guys right nextdoor.
that's interesting! thanks brother ill start a discussion on this topic so that I can communicate to people who are investing in other countries so that I can get to know what I need to do in order to be where I want to be
@Jasraj Singh The midwest has stable markets and good cashflow as well! There are several topics on this.
Right! I have been searching about kansas city, Indianapolis and michigan they seem to be affordable! do you have any suggestions which one could be better?
Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Jasraj Singh Treat your business like a business and do a market analysis on all 3. Look at the following indicators over a 10-15 year period to understand trends: population, job growth, job diversity, income growth, median (not medium) home price, crime rates, and vacancy rates. Also look to see which ones are landlord friendly vs tenant friendly. You want to stack as many of these investing cards in your favor as possible. THEN pick one and start diving into the various submarkets and neighborhoods. I outline this process on my site if you have q's or just PM me.
@Jasraj Singh Treat your business like a business and do a market analysis on all 3. Look at the following indicators over a 10-15 year period to understand trends: population, job growth, job diversity, income growth, median (not medium) home price, crime rates, and vacancy rates. Also look to see which ones are landlord friendly vs tenant friendly. You want to stack as many of these investing cards in your favor as possible. THEN pick one and start diving into the various submarkets and neighborhoods. I outline this process on my site if you have q's or just PM me.
Got it! thanks a lot! but could you tell me what do you mean by landlord friendly or tenant friendly?
Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
6y
The state and local laws... does the jurisdiction favor the landlord or tenant. If you are the landlord, you want the laws on our side for rent guidelines, eviction processes, etc.
The state and local laws... does the jurisdiction favor the landlord or tenant. If you are the landlord, you want the laws on our side for rent guidelines, eviction processes, etc.
Just saw this message! thanks a lot! So I need to hire a lawyer for that right?