Need help understanding cash out refinance!

[Khalid Elshowaya]

I am a new investor and I am having a hard time understand aspects of a cash out refinance.  Right now I am looking at a quad that is worth $171,000 that I want to purchase.  This property needs new flooring, new cabinets and appliances and a bit of work in the bathrooms.  Lets assume the estimated cost for rehab is $50,000, including vacancy. Even though this is an extreme overestimate, I understand that work may go over budget. There are multiple properties on the same street that are also quads worth anywhere between $330k to $350k. 

If I were to do a cash-out refi, and the property was appraised and refinanced for $330k, what would that mean for the mortgage on the home?  If I already have $221k into the deal and the new value is $330k, can I now take out around $100k for another investments? Isn't the mortgage now greater? Won't that mean that the expenses now increases because there is a larger loan attached?

Wouldn't it be best to completely pay off the property with the new loan? How does pulling our money come into play?  I am really trying to understand this concept.

[Hugo Alves]

Khalid,

A cash out refi is only a percentage of the appraised value. When you refinance and cash out, the new loan pays off the original loan and credits a new note on the property.

If the property appraises for $330k and the lender is offering 75% Cash Out Refi, you'd recieve $247,500. Keep in mind there are fees for this loan that will vary. If the fee is $2,500, and you receive $247,500 - $2,500 fee - $221,000 Original note = Cash out is $24,000.

Regards,