When doing a cash out refi to use the funds to buy another property, technically you end up with a larger mortgage loan, hence larger payments... is the concept that the rent income from the new property should cover the incremental mortgage amount (and ideally some positive cash flow)?
Realtor · Cleveland, OH · Member since 2021 · 1k+ posts · 1k+ votes
4y
Your first property that is getting cash out refi'd should be able to cover the monthly mortgage payment increase and still cash flow. If that isn't possible, getting into another property might be a better use of that capital.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
4y
@Alberto Vargas I mean, what you are asking is nice to have and that is the target of all of this but there are plenty of people who didn't have very good cash flow at first but then later would get cash flow.
Think about it this way. Let's say you have $20,000 in the bank. That's no small amount for anyone. If I buy a home and I have to come out of pocket $10,000 to buy it...that means I can only buy 2 properties. But if I can get all of that $10,000 back when I refinance and I keep buying and buying and buying properties. However, if I borrow $10,000 more....that means my payment is higher....and I cash flow less. But what is my other option if I don't have a lot of assets? Sometimes we need to leverage a little more in the beginning of our careers. Once you have 10-15 properties...now $10,000 is my MONTHLY income. Maybe I can leave a little more in the properties now.
So there's no hard rule to this. It's whatever fits you better. We make money 3 ways with real estate - cash flow, appreciation of the asset, and principle buy down of the debt (with each payment that is made on it). So even if you don't cash flow so well in the beginning the other 2 elements will keep you going. Read this article that Brandon Turner wrote, it'll show you what I mean: https://www.biggerpockets.com/...