When to Cash-Out Refi????

Question

Hi BP Family!

After few years of analysis paralysis, I've finally taken the leap and have purchased my first property. And I am already submitting offers for my 2nd.

My question to you all is what my next steps should be with this first property. I've updated the bathroom and kitchen and the property will rent out for $1200. Do I get an appraisal now to cashout refi- or do I get a tenant in first? Any guidence would be appreciated.

Thank you!

Joe Splitrock · Answer

It is hard to give you advice without having details on the property purchase versus current value. I will make up an example. If you paid $100K for a property and after rehab it is worth $120K based on 75% LTV, the maximum cash out is $15K. That assumes the property actually appraises for your expected value, which is a risk. That also doesn't include refinance costs which could be $2000-4000. This is just an example. If your rehab is returning a much higher value increase, it may be worth it. In my experience you need one of two things for cash out refinance to be of value:

1. Substantial rehab and value increase.

2. Rehab combined with value increase over time.

Cameron Tope · Answer

Tracy,

Congrats on getting your first deal with your eyes on the second!

In my experience with banks, it's easier to do a cash-out refi with a tenant in place on a 12-month (or longer) lease. So I would say tenant first then cash out.

Also, the bank doing the appraisal will have their own appraiser and most likely won't be able to use an appraisal you ordered.

Best of luck!

Tracy Washinsky · Answer

Thank you Joe! This is so helpful. I didn’t do a substantial amount of rehab. So I don’t think the value add is quite there. I’m definitely going to rent it out and hold the property.

Tracy Washinsky · Answer

Thank you Cameron, very helpful. I appreciate it!