To refi, or not to refi. That is the question!

[Thomas Tsitouridis]

So, we are at the point where we have completed renovation on our 2nd property, new PAYING tenants are in, and are now able to cash out refinance this deal. Breakdown below on our property and current mortgage rates.

Purchase: $190,000

Loan: 6/1 ARM 15yr balloon 30yr amortization @3%

ARV: assuming $250,000

Rents: $2,900 per month

Expenses: $1,800 per month (includes taxes, electric, insurance, flood insurance, current mortgage, vacancy rate, property management)

NOI: $1,100

Invested: $79,000 (down payment, closing, rehab)

Our lender is willing to give us up to 75% ARV ($187,500). We owe $141,000. After pay off we are left with approximately $47,000.

The new loan terms are as follow:

Commercial Loan: 5/1 ARM 15yr balloon 25yr amortization @4.25%

Our current principal and interest is $600 and this new loan would bring it up to $1,000 per month. Meaning our cash flow goes from $1,100 down to $700. The upside here is that we receive our down payment back of $47,000 while still leaving some money in the deal. We would use this money for the next BRRRR. We also have the option on a fixed mortgage but that would bring up the loan to $1,500 month leaving too little for cash flow IMO.

Any thoughts and/ or help would be greatly appreciated if we should move forward with the current new loan or go in another direction. 

Thanks everyone!

[Theresa Harris]

Jaron has some good points. I'd also look at how much refinancing would cost you.  If you are planning on holding the property long term, the first option seems good and you are still cash flowing $700 (you've factored in taxes, repairs, insurance, vacancy).  

As for the $400 difference in cash flow, look at the $45K you are pulling out and ask yourself how many months at $400 it would take you to get that back (just over 9 years). Plus you can use that to get another property.