First Refinance on the horizon

[Philip Levi]

Hello all. I am a new real estate investor and I have just completed a renovation on my first property. It's just about time to refinance to find another property. 

I have several questions.

1.)Who should I refinance with?

2.) Can I refinance now (while values are high) and then wait to purchase a property once the market cools off in several months? 

3.) Are there any tax liabilities triggered by doing this?

Thanks so much!

[Sasha Mohammed]

hi @Philip Levi!

1) I'm a bit biased, but i recommend you reach out to a broker that specializes in these loan types. you'll find that there's a broker/ mortgage lender on just about every street corner, but many of them (i'd venture to say even "most" of them) stick to the cookie-cutter type loans, and don't have a good understanding of the investor side of things. there are lenders tailored to your BRRRR strategy. you won't find them by calling up Loan Depot for example, and many Loan Officers will try to fit you into their box. I suggest looking for a broker who's investor-focused, let them do the shopping for you.

2) you can refinance now, sure. usually lenders will want 6 month seasoning from purchase price in order to use appraised value instead of purchase price for value. some lenders (again, investor-focused lenders) will let you go off appraised value right away if you can document your renovations. not a bad idea to hold the cash until an opportunity presents itself, but I would caution you against "waiting for a cool off" and instead, focusing more on finding the "right deal". 

3) talk to a licensed CPA on this, but my understanding is that if you're doing a cash-out refi, it is not taxable. it's not income, and it is not capital gains... it is debt. 

[Lorenzo Prieto]

Hi Philip, 

1. This depends on what your goals are. Best thing to do is consult with a lender and explain what you are trying to accomplish. A good lender should be asking these questions to ensure they are finding the best program to set you up for success. It could be beneficial to shop around to make sure you are getting a  competitive rate and favorable terms.

2. Yes, you can refinance now and look at purchasing later. However, if you are looking to do a cash out refi you will be paying interest on the new loan amount plus cash out immediately. If this is your primary residence you can do a HELOC on the property and have the line of credit ready to go without paying interest on it. It will sit interest free as long as you don't draw from it. This could be an option for you.

3. Unfortunately, I’m not a CPA or tax advisor so I cannot help with this question.

Hope this helps! 

[Steven Foster Wilson]

Quote from @Philip Levi:

Hello all. I am a new real estate investor and I have just completed a renovation on my first property. It's just about time to refinance to find another property. 

I have several questions.

1.)Who should I refinance with?

2.) Can I refinance now (while values are high) and then wait to purchase a property once the market cools off in several months? 

3.) Are there any tax liabilities triggered by doing this?

Thanks so much!

 I would call as many lenders as possible and compare rates and terms. When I am refinancing a property I always do my research and call multiple lenders. I even pulled out of my recent refinance because midway through I found another bank that had significantly better terms. 

I have refinanced and waited to buy another property. I would just calculate the benefits of waiting or buying another one. Sometimes lenders have better deals if you use the refinance to buy your next property. I would call around and see what you can find. 

I have never had any issues but it is always worth double checking. 

[Issac San Miguel]

Sasha hit the nail on the head with her response.

There are bevy of DSCR loan products out there designed to meet different goals.

What is your goal for the property? Do you want to maximize your cash out? Do you want to focus on what the best and lowest interest rate? Do you want to focus on the lowest payment on the property?

All of those are questions I would ask to tailor a long term note towards the property.

Hope this helps.  Let me know if you have any questions.

[Andrew Garcia]

Hi @Philip Levi, I agree with Sasha.

1. A mortgage broker that specializes in investor loans is your best bet. Shop around with 3-4 to ensure that none of them are out of line. If you want a step-by-step on shopping lenders, please let me know.

2. You could refinance now to lock in your interest rate and high appraised value. Then, if rates improve in 6 months, you could do a rate and term refinance with lower costs to lower your rate and monthly payment. You can get your cash in as little as 2-3 weeks so I would wait until you can actively search for deals. If your schedule is super busy for the next 3 months, it might be better to wait.

3. Talk to a CPA.

Hope this helps! Let me know if I can be of any assistance.

[Andrew Postell]

@Philip Levi congrats on completing your first property.  You have taken a step that a lot of people never will.  I'm sure you learned a lot from it already but the journey has just begun!  Time to learn from this one and get better and better and better with each one.  It will be a lot of hard work - but if you can do it, then it will change your life.

1.)Who should I refinance with? - I wrote an entire post on this topic that you can read HERE.

2.) Can I refinance now (while values are high) and then wait to purchase a property once the market cools off in several months? - Sure....you sure it will cool down though?

3.) Are there any tax liabilities triggered by doing this? - Tax liabilities from cash out refinancing?  From purchasing a new property?  From waiting?  In either case, no.  The tax we face as investors is from SELLING the asset or from the INCOME we make on the property (cash flow).  No tax triggers come from a refinance nor from a purchase...nor from waiting but other things happen from waiting.

Anyway, hope all of that makes sense.  Thanks!

[Philip Levi]

Wow! thank you for all the great responses everyone. I will sift through these and come back around. Thanks again!

[Basit Siddiqi]

3.) Are there any tax liabilities triggered by doing this?

A refinance is not a taxable transaction as you are not selling the property.
It is an increase in cash and an increase in a loan.