Cash out refinance: is it a good idea?

[Paul Park]

I’m looking into doing a cash out refinance to use my equity to purchase a 2nd rental property. However, after crunching the numbers on a potential 2nd unit, there’s a risk that my cash flow remains flat. Do you think it’s still a good idea to do a cash out refinance, purchase a 2nd property, but have the same cash flow?

The reason for this is two fold. I lived in my current property so I was able to pay just 10% down. I now have just shy of 20% down. I’d have to maintain 25% equity on the cash out refinance. Naturally my monthly payments increase. In addition, the property I’m looking to buy is pricey and I’m anticipating lower than usual rent because of COVID.

Please let me know your thoughts!