Should we cash out refi and buy another?

Question

BP Community,

I’m hoping to get some community advice on a deal set up.

Background: my partner and I have owned a rental property for about five years. We’ve always had the intention of cash out refinancing into another property once the time was right. Right now we have the equity to do it. We both work W2 jobs and don’t use the income from these investments. Goal is extra cash flow in retirement for financial freedom.

Dilemma: the cash flow from the property right now is roughly $1300 per month.  Once we refi, cash flow for both properties combined will be about $1400.  This is due to the  increase in mortgage rates and house prices.

Pros/cons as I see it:

Pros: two appreciating assets versus one; as rents rise, we’ll make more net income.cons: less cash flow, double capex, double maintenance.

Anyone mind letting me know your thoughts?thanks!

Brian

Brian Raike · Answer

Jasper, Pat, and Alecia,Thank you so much for your response and advice.we are moving forward with it.I truly appreciate you taking the time to respond!thanks again!

Brian

Alecia Loveless · Answer

@Brian Raike Revisit your goals which you state include cash flow in the future.

If you buy a second property at current interest rates you would always have the option of refinancing one or both properties at a future date if interest rates decrease which would increase your immediate cash flow.

If this does not happen you will still have two properties getting paid off and providing tax benefits and cash flow and hopefully appreciation.

While you may think you will have 2X the work with two properties I have found as I scale my portfolio that added units don’t necessarily exponentially increase the work. The only building that exponentially increased my work load was my 8 unit which is my largest and we did some significant improvements to it the first year I owned it.

If you already have a solid team in place with your first property adding a second should be fairly easy. And if you haven’t already you can start putting systems in place to help automate the process of management.

Mike Fingleton · Answer

Hey Brian,

First off, congrats on building that equity over the past five years...that's a solid accomplishment. I remember when I was in a similar spot, debating whether to leverage my first rental to acquire another property. The numbers didn't look spectacular at first glance, especially with rising interest rates nibbling at cash flow.

Here's the thing: while your immediate cash flow only bumps up slightly from $1,300 to $1,400, you're doubling your assets. Think of it like planting two trees instead of one...they might not bear a ton of fruit right away, but over time, you'll have a richer harvest. Plus, owning multiple properties spreads out your risk. If one tenant moves out or unexpected repairs pop up, the other property can help cushion the impact.

Of course, more properties mean more responsibilities...double the maintenance and potential headaches. But if your goal is long-term financial freedom, adding another appreciating asset could be a smart move. Rents tend to rise over time, and that extra $100 in cash flow might look a lot better a few years down the road.

Have you considered exploring markets like Austin or Scottsdale? I've noticed investors finding some promising opportunities there despite the current rates, partly because of strong rental demand and growth potential.

At the end of the day, it's about aligning with your long-term goals and comfort level. Maybe run a few scenarios...what if interest rates climb higher, or if property values plateau? It's not a one-size-fits-all answer, but hopefully this gives you some food for thought.

Whatever path you choose, I'm here rooting for your success.

Jasper & Pat

Turning investment visions into REALITY in Phoenix, AZ - Ranked #1 for residential real estate growth and opportunity by PwC