Would you Refinance this Deal?

Question

So April of this year I purchased a 10-unit multifamily property for $600k. Put $171k down + Closing costs. Financed $450k at 6.5%

I stabilized the building fairly quickly using only cash flow. It's now worth $800k.

Bank told me I can refinance and pull out $130k at 7.5%-7.75%.

The pros are I can use this money to build up my war chest. Deals are coming and my funds are lower than I'd like them to be. Also after the refi I'd only be in the deal $41k skyrocketing my cash on cash.

The cons are, I'm increasing my interest rate by a point and this refi would put my DSCR right at 1.2 meaning this property would be cash flowing very little.

Would you refi?

Andrew Postell · Answer

@Matthew Masoud this is the BRRRR forum...you might get some replies here but I would also post in the "multi-family" forum as well.  A lot more people will answer this post there since the property is over 4 units.

The things I might consider - can I execute on another property with $130k?  Meaning, if you lose some cashflow here...can you make it up on the next?  And do you need the current cashflow to survive?  So, if you have a W2 job that earns income for you, then it's likely that losing some cashflow now is ok.  But if this property is a major source of your income...then that will have a different thought process.

Hope some of that makes sense.

Matthew Masoud · Answer

Yeah this is where my head is at, especially because (I believe) a once-in-a-lifetime buying opportunity is on its way and I don't want to be on the side line due to low funds.

Mohammed Rahman · Answer

Awesome job @Matthew Masoud - what a good problem to have.

If I'm in your shoes, I would also consider the opportunity cost of foregoing on the cash out right now.

For example, if I had another deal come across my desk that I would have made had I had the $ in my war chest... then I'd probably be beating myself on the back for not pulling the cash out when I could.