Can someone help me out understanding the full consequences of a cash out refi? I bought my home 8 years ago for 59900. Owe just under 50k now. Worth somewhere around 120k. If I refi for the cash, and do the full 80%, that would be a new loan of 96000, minus the 50000 owed, means I get a tax free check for 46000 correct? Is this a smart option to get the 46000 and use that to purchase an investment property, or too risky since I’m assuming my current mortgage will double? I wouldn’t want to get stuck with a huge payment on my home, and if I purchase a rental and the cash flow only covers my new mortgage payment, it doesn’t seem to make much sense. Any advice is welcomed
Thanks that’s what I figured. My fear is doing the refi and not being able to find a good cash flowing property or not getting a tenant quick enough and being stuck with a double payment that I couldn’t afford.
@Bill Zarzecki you have to do the numbers with the actual figures.
In general if you can reinvest the money at a higher return than the rate you borrow at it makes sense. How far you go with that in part depends on your tolerance to risk.
Most home equity loans are adjustable rate, so that is a risk. Obviously you are putting you home at greater risk if you cannot make the higher payments.
Is it possible then to use the HELOC as a down payment, and then use the BRRRR strategy to pay off the HELOC and start all over again?
Obviously you would have to subtract the loan fees, but that's how it works and one of the best things about holding real estate long term. I wouldn't borrow that extra money unless you plan to invest it though.
Howdy @Bill Zarzecki
To answer your question, yes, you can use the HELOC for a down payment. Just remember to include that additional payment in your calculations. The repayment will be a shorter schedule than your mortgage payment. Suggest at lest 12 months. HELOC s can be used over and over.
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