Investor · San Diego, CA · Member since 2018 · 12 posts · 2 votes
Hey all -
I hope all is well with everyone and the family =) ! I am in a difficult situation, hope you all can help with this tough question,
SHOULD I DO A CASH-OUT REFINANCE NOW OR A LATER DATE WHEN I NEED THE CASH FOR A PROPERTY?
I have an investment property in Mesa, AZ, currently cash flow positive 30 year @ 3.875%
I have enough equity to take out $70K, 30 year @ 4.125% if I do a cash-out refinance now.
My question is should I do a cash-out refinance now even though I don't plan on purchasing a house anytime soon? <-- I don't want the money to sit in the bank with 1%
I also already have a separate housing fund saved up on the side so this $70K would be an addition into my savings account.
You can arbitrage using the 70K, as long as you can get a return greater than 4.125% then you would be net positive. Also, it's good to pull out the equity while you have it and the interest is super low. Let's say you don't and the equity stays roughly the same but interest rates are up 1 point, then this decision would be harder.
If you don't plan on investing it I don't really see the point in cashing out the equity. It'll just decrease your monthly cashflow and it'll sit around doing nothing. Just my 2 cents.
You can arbitrage using the 70K, as long as you can get a return greater than 4.125% then you would be net positive. Also, it's good to pull out the equity while you have it and the interest is super low. Let's say you don't and the equity stays roughly the same but interest rates are up 1 point, then this decision would be harder.
In my opinion, I think it's better to cash out refi now so that you are prepared with the money when you need it. We are in the middle of a cash out refi and have encountered many bumps along the way that have severely delayed the process. After the initial delays, Covid hit and it's delayed it even more. We've learned a lot along the way, but this is why I recommend doing it now rather than later.
thank you all @Ashley Vellon@Stone Jin@Trent Stone Appreciate the response, my issue is that If I plan to purchase a house this year, I have the funds for it hence I don't need to cash-out refinance right now. Most banks are only paying 1% interest. However, I also agree with @Stone Jin Why would I not take the cash-out now and take advantage of the low-interest rate since investment property interest rate would only go higher
I figure I can delay the cash-out till right before I start to see either the interest rate goes higher or when the housing market starts to take a dip <-- in this case I can still capitalized on max cash-out amount
@Michael Mai You may consider getting an equity line of credit on your investment property. I heard Mountain America Credit Union was doing credit lines on investment properties. That way you can keep the better rate and only need to pay interest on what take out of the line of credit.
@Michael Mai You may consider getting an equity line of credit on your investment property. I heard Mountain America Credit Union was doing credit lines on investment properties. That way you can keep the better rate and only need to pay interest on what take out of the line of credit.
Great to know! Thank you!
do you know of any banks that do credit lines on investment properties if a property is not located in Arizona?
FirstBank is a portfolio lender and does LOCs on investment properties in AZ. I've used them twice
Typically only smaller banks will do this, whether they'll do it for an out of state property probably depends on if they have a banking presence in that other location or not.
I'm considering a cash out refinancing a rental in Gilbert AZ and just got a 3.99% quote a few minutes ago. But I think thats probably leaving 30% equity which works for me. I'm planning to buy another property in the next 12 months.
FirstBank is a portfolio lender and does LOCs on investment properties in AZ. I've used them twice
Typically only smaller banks will do this, whether they'll do it for an out of state property probably depends on if they have a banking presence in that other location or not.
Are they lending through the COVID crisis? I am having issues finding a lender that can LOC an investment townhome I have
@Brett Tvenge I'm not 100% sure, I haven't been in touch with them in the last 4 months. They were back in February when I got a quote on something. But that was technically before everything went crazy. Just reach out, I worked with Tony Imperiale, DM if you want his #
I'm considering a cash out refinancing a rental in Gilbert AZ and just got a 3.99% quote a few minutes ago. But I think thats probably leaving 30% equity which works for me. I'm planning to buy another property in the next 12 months.
Whoa that’s awesome ! Do you mind sharing what bank ? I have reached out to first bank and other lenders prior suggested here
FirstBank is a portfolio lender and does LOCs on investment properties in AZ. I've used them twice
Typically only smaller banks will do this, whether they'll do it for an out of state property probably depends on if they have a banking presence in that other location or not.
Are they lending through the COVID crisis? I am having issues finding a lender that can LOC an investment townhome I have
I will let you know I email them to have a lender contact me for cash out refinance
@Michael Mai don’t think there is any use to cash out if you don’t use the proceeds for another purchase, due to the fact that you will have higher debt service payments for no reason other then just holding on to the money, which you will be paying interest on capital which isn’t working for you. On a separate note, lenders are more aggressive to cash out a borrower if the funds are being used for a new acquisition, or to put back the capital into the property.
Thank you @Aaron Sussman I thought about that but then I thought there are some loan restrictions on how long you can obtain another loan.
Example if I do a cash out now and use the cash for a property down payment. Can I obtain another loan on the new property when I just completed a refi ?
Thank you @Aaron Sussman I thought about that but then I thought there are some loan restrictions on how long you can obtain another loan.
Example if I do a cash out now and use the cash for a property down payment. Can I obtain another loan on the new property when I just completed a refi ?
Another good reason to do the HELOC is that you never know when the next good deal will come, or how much it will be. If you wanted to cash the money out, and start a private investment fund, that may also be an option. Less work that managing a rental or a flip and the difference between the rate you lend at and the rate you borrow at could still yield you a nice profit with a lot less work. While lending seems to be fairly available right now, most lenders have tightened their requirements, and you could fill the gap for an investor who used to borrow from banks but doesnt have a job or conventional job and now no longer has access to banks but doesnt want to pay for hard money.
Another good reason to do the HELOC is that you never know when the next good deal will come, or how much it will be. If you wanted to cash the money out, and start a private investment fund, that may also be an option. Less work that managing a rental or a flip and the difference between the rate you lend at and the rate you borrow at could still yield you a nice profit with a lot less work. While lending seems to be fairly available right now, most lenders have tightened their requirements, and you could fill the gap for an investor who used to borrow from banks but doesnt have a job or conventional job and now no longer has access to banks but doesnt want to pay for hard money.
Hi Matt -
Thank you for the response, I am still new to this and this is the first time I heard of the private investment fund. Do you have any experience in this? I would love to find out mor e
Just thought I would update you all - I am leaning toward more on the HELOC now
Goal - using HELOC to pay off the mortgage then prepare future funding using HELOC <--- I plan to obtain an investment property HELOC, lender suggestions are welcome, already reached out to Mountain America and FedPen
Recently found out about using HELOC to purchase another property or using HELOC to pay off your mortgage - lump-sum principal to save on interest ( calculate monthly vs daily)
Ex. obtain a HELOC for $30K, write a check for $30K on day 1 to pay off the principal on my mortgage. Put all my income into the HELOC account on the 1st of every month to reduce the daily balance, use a credit card (carefully) for all my expenses. End of the month, take $$ out of HELOC to pay for the expense, then 1st of the month, money goes into HELOC account again...repeat till $30K is paid off
Instead of paying the $30K to pay off the mortgage only once, I can use this strategy many times to pay off the investment property quicker. If down the road, I need the cash to purchase a property within 12months, I can either pull it out of the HELOC or my savings account
I understand the risks of foreclosure on non-payments hence I have the savings account sitting on the side (other housing funds) and a stable job
What do you guys think? Any suggestions or anything I am missing? Would love all the feedback
I just did a 69.5% LTV cash-out refi at 3.5% on a rental I have in Mesa. You get a better rate under 70% LTV and I want to have cushion because of the turbulent times we are in. It raised my PITI $140 and I used this cash to buy two properties in OK @ 80% LVT producing about $380 in CF, thereby increasing my portfolio CF by 72%.
My personal opinion would be why are you wanting to do a cash out refinance in the first place? If you do not already have a property you are wanting to invest in, I do not see the point in taking out all the equity you have already put into that property. I understand that everyone wants to manage risk differently and in order to grow you have to accept a certain level of risk in each investment. If it were me, I would find a local bank that would allow you to use the equity in that property as collateral for your next purchase without getting a cash out refi and just sitting on the money.
If you can provide this as additional collateral, then your loan to value (LTV) of the home ratio will be at a better percentage and will make your balance sheet stronger for the next loan officer that wants to analyze your ability to repay and could improve your chances of getting a new loan.
@Trey Fankhouser Have you actually done this equity as collateral play before? I would think most residential lenders wouldn't go for it but not sure. In the commercial world though, there seems to be more appetite for creative financing options.