Refinance rental property

8 Replies

Hi I have a rental that I don't have much equity in it. Interest rate is high 4.7% 7/1 ARM. I would like to refinance the property to get interest rate around 3.5% 30 years fixed rate. I will have to put in approx $150K to bring down to have 25% equity. I would like to keep the rental for long term more than 7 years. Any advice if I should refinance?

I was iniitally thinking to wait for 5 more years since its 7/1 ARM and refinance at that time and I will have more equity. But interest rate are so low now that may be I should refinance now.

Originally posted by @Amy Zhang :
Originally posted by @Joe Villeneuve:

What's your monthly Cash Flow now?

 Right now, cash flow is about $400/month. If I refinance into 30 year mortgage with 3.6%, monthly cash flow will be about $2000/month. 

 How?

I will save in mortgage payment by $1800

Originally posted by @Joe Villeneuve :
Originally posted by @Amy Zhang:
Originally posted by @Joe Villeneuve:

What's your monthly Cash Flow now?

 Right now, cash flow is about $400/month. If I refinance into 30 year mortgage with 3.6%, monthly cash flow will be about $2000/month. 

 How?

If those truly are your numbers, $150k investment returning $1,600/mo cash flow ($19,200/year) would be an CoC return of 12.8%. Plus you'd get into a 30-year fixed at a very low interest rate. Decision is, do you think you could take that 150k and get a better return on a different asset? If so, you should invest that into the other asset at the same low 30-year fixed interest rate and determine what to do with your 7/1 ARM at a later date (refinance or sell). Very simplified decision tree, but that's how I'd be thinking.

I would definitely explore other opportunities. 
I really can't follow the logic of the current rental while being so cash heavy,  also not following the desire to burry the cash into it.

Personally, if I had this asset in this peak market and had such little equity- I would sell it ASAP, sounds like a disaster waiting to happen.

Originally posted by @Patrick M. :

I would definitely explore other opportunities. 
I really can't follow the logic of the current rental while being so cash heavy,  also not following the desire to burry the cash into it.

Personally, if I had this asset in this peak market and had such little equity- I would sell it ASAP, sounds like a disaster waiting to happen.

 I'm leaning towards this.  I would love/need to see how you go from $400/month CF to $2000/month CF just by refinancing. 

If $150k in cash gets your 25% equity, then the property must be worth $600k and your loan is then $450k.  I just reverse engineered your numbers working backwards from the new refi mortgage ($450k refi loan/3.5%/30 years).  The new pmt would be $2021/month.  That would mean if you increased your CF by $1600/month, your existing mrtg. pmt would be $3621/month.

I don't see how this is all possible... in any universe where math is involved.