Cashout refinance in BRRRR now with high interest rate

Investor · Dallas, TX · Member since 2019 · 91 posts · 30 votes

Hi BP community,

I bought my first fixer-upper and took a year to fix it up. I just rented it as Midterm rental and cash flowing well since there is no mortgage. Home is appraised about 450k.

I am debating two options;

1. keep it as MTR and save money to invest next deal.

2. cash-out refi to invest next deal. Rate would be 7.5% for 30 year fixed. To be conservative, I am thinking of doing cashout refi about 200k. PITI would be about 2000 per month.

I am in my 40s and I have my W2 job and plan to keep working for a while. To grow my rental portfolio, I would like to take out some cash but I dont like the fact that I need to pay high interest rate. Would appreciate any advice.

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Andrew PostellPro Member

Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes

@Jason Sung congratulations on your first property. When we analyze these types of questions there might be several things to take into consideration. Some of those might not be able to be covered in this type of a setting but the main question - why do you need the money? And if you do have a need for the money...then how would you get that money without this refinance? There's more to it then JUST these answers but this is where we should start.

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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
2y
@Jason Sung congratulations on your first property. When we analyze these types of questions there might be several things to take into consideration. Some of those might not be able to be covered in this type of a setting but the main question - why do you need the money? And if you do have a need for the money...then how would you get that money without this refinance? There's more to it then JUST these answers but this is where we should start.
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
2y
Quote from @Jason Sung:

Hi BP community,
I bought my first fixer-upper and took a year to fix it up. I just rented it as Midterm rental and cash flowing well since there is no mortgage. Home is appraised about 450k.
I am debating two options;
1. keep it as MTR and save money to invest next deal.
2. cash-out refi to invest next deal. Rate would be 7.5% for 30 year fixed. To be conservative, I am thinking of doing cashout refi about 200k. PITI would be about 2000 per month.
I am in my 40s and I have my W2 job and plan to keep working for a while. To grow my rental portfolio, I would like to take out some cash but I dont like the fact that I need to pay high interest rate. Would appreciate any advice.

Hey Jason,
What would be your overall goal? If you plan to pay off your mortgages aggressively, borrowing more might not help out.
If your goal is to scale and keep buying more, leveraging your equity will help you out. No one loves the idea of paying high interest rates, but it is the cost of doing business.
Would your property still cash flow at a higher mortgage payment?
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Preston DeanBusiness Member
Realtor · Fort Worth, TX · Member since 2021 · 779 posts · 368 votes
2y
Quote from @Jason Sung:

Hi BP community,
I bought my first fixer-upper and took a year to fix it up. I just rented it as Midterm rental and cash flowing well since there is no mortgage. Home is appraised about 450k.
I am debating two options;
1. keep it as MTR and save money to invest next deal.
2. cash-out refi to invest next deal. Rate would be 7.5% for 30 year fixed. To be conservative, I am thinking of doing cashout refi about 200k. PITI would be about 2000 per month.
I am in my 40s and I have my W2 job and plan to keep working for a while. To grow my rental portfolio, I would like to take out some cash but I dont like the fact that I need to pay high interest rate. Would appreciate any advice.

Based on the info you gave I would say #2 would be my goal. Yes a 7.5% rate isn't ideal but if you are making a decision on either 1 or 2. #2 would be the lesser of the two evils in my opinion.
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Mark MunsonBusiness Member
Lender · Orlando, FL · Member since 2022 · 440 posts · 300 votes
2y
Hi @Jason Sung
What type of loan product would you be using? Rates are temporary and you can always refinance in a few years when rates come back down. If the loan program (like a DSCR loan) has a prepayment penalty, just make sure it is for no longer than 3 years. Alternatively, if you have a decent DTI ratio, you could go with a bank statement loan with no prepayment penalty.
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Alex Church
Lender · Springfield, MO · Member since 2023 · 28 posts · 19 votes
2y
If you want to grow your portfolio fairly quickly, I'd recommend the cash out refinance. Even though rates are high, since you're not looking for a high LTV, you should have a good cash flow. You can refinance into a lower rate later on once rates go down. The more you build your portfolio, the more money you'll get to pay off the current mortgage while maintaining a profit.
Most of my clients like to cash out refi, use that money on the next property, cash out that one, use the money on another property, etc. Any good DSCR lender will make sure you're not losing money and will look at current rents + market rents to ensure you maintain a positive cashflow. The more you do this, the more the money will snowball and eventually you'll have more than enough to pay off the loans while keeping plenty in your back pocket.
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