Should I Cash out Refinance!?

Question

Hello again, BP Member.

Just wanted to come and get your thoughts on three properties that I own and was thinking of doing a cash out refinance:

Two are investment properties that have had their value skyrocket and one is my primary that I will eventually move from and rent.

I am roughly $200 under current market rents on my two investment properties (Same lease for three years).

Property 1) Purchased at $110,000, owe $40,000, rough value $175,000.

Thinking of doing a cash out refinance and will still cashflow around $250-275 on the door after raising rents.

Property 2) Purchased at $120,000, owe $90,000, everything else is identical to first unit.

Primary ) Purchased at $167,500, owe $128,000, rough value $210,000.

When I move and rent the unit would cashflow around $200-250.

Should I pull cash out of all three to buy more?

Will prices comes back down? (my area SE PA is seeing very high prices right now).

Should I just pull the $40,000 out of my primary to pay off property #1?

I honestly want to scale, but this would be a huge step for me and I am slightly nervous and do not have any mentorship.

Any help is appreciated!

Joseph Cornwell · Answer

@Lawrence Paul Well the simple answer to this question is what does the math say? Meaning, if you take out this equity and invest it in other deals, what is going to give you a better return? Losing the cash flow on the higher mortgage payment, or the new cash flow from another deal? In most cases if you are buying correctly, the new deals cash flow should cover more than you lost with the higher mortgage payments. Other factors to consider are the cost to refinance, any interest rate changes, etc. One strategy to look at is doing a single mortgage on all 3 properties to reduce your closing costs, but that would make it harder to sell them individually if you wanted to in the future. As for paying off the property, what would the benefit be besides the higher cash flow? You will lose the tax benefits of the mortgage interest, you will also lose the leverage of the financing, and have a lower CoC return as a result. It would reduce your risk some, but if you are in a good cash flow position and believe in your market, it seems this would be counterproductive to your goal of scaling your portfolio. Lastly, to what will the market do? Obviously know one truly knows, and if they say they do they are lying. However, there are no metrics I see right now, along with the actions and proposed actions of the federal government that would indicate to me that housing supply will drastically improve, or interest rates will drastically rise soon, that would lead me to conclude property prices or rent costs won't drop in the near future. That is my opinion. It sounds like you are in a good equity position, if you  have any specific questions feel free to reach out. Good luck on your decision!

Lawrence Paul · Answer

Thank you for the response.

I decided on going ahead and cash out refinance my primary residence and property 1.

While the cashflow will go down, I really should be playing the long game and continue to scale (like I wanted to do).

Another purchase/rent increases should/will cover the losses in cashflow, while increasing amortization's.

Really appreciate someone taking the time to reply and read, since I have no one else to talk to about these subjects.

Thanks again!