Cash Purchase - Cash out Refi?

Question

In Sept 2025, I used the settlements from a divorce to purchase a 3/2 SFH with the plan of turning it into a rental in the near future. I'm currently working on doing a cash-out refi, but not sure if a cash-out is the best use of my current resources. I'm currently using the property as my primary residence.

Purchase: $239k

Appraised Value: $260k

Median Expected Rental: $1950/mo

Taxes: $230/mo

Hazard Ins: $250/mo

REFI Consideration:

Refi: $195k

Closing Costs: $8500

Interest: 6.15%

Points: 1

Cash at Closing: $187k

Additional info: Currently have $100k+ in reserves right now.

Vijay Friedman · Answer

@Matthew JonesIf the goal is to turn it into a rental, I'd look at the cash-out decision through the lens of what that capital can do elsewhere. The refinance itself isn't necessarily the win—the question is whether the equity can be deployed into opportunities that outperform the cost of the new debt. Feel free to click Contact Us, check out our website, or give us a call if you'd like to discuss the scenario further.

Matthew Jones · Answer

Janice and Alex,

Thank you both for your responses.

The intention of the cash out is to purchase another property (or properties) and benefit from a conventional loan. I plan to wait a respectable amount of time to meet primary residence restrictions.

The numbers for tax/ins were an attempt to be conservative since I’ll eventually lose homestead exemption and need a different ins policy.

On the up side, my W2 pays very well and I’m currently rated 50% VA. I’m also a licensed realtor, but don’t really focus on using the license.

Alex Morales · Answer

Matthew, Janice makes a good point about having a clear use for the cash. Let me add some numbers to consider...

With a $195k refi at 6.15%, your monthly P&I would be around $1,185/month. Add your $230 taxes and $250 insurance and you're looking at roughly $1,665/month PITI.

Against $1,950/month rent, that leaves about $285/month before vacancy, maintenance, and cap-ex. Once you factor in typical reserves (5-8% vacancy, 5% maintenance, 5% cap-ex), you're basically breaking even or slightly negative cash flow.

The real question is what's the $187k going to do for you? A few scenarios to think through...

If you have a specific deal lined up where that $187k can be deployed at better returns than the 6.15% you're paying on the refi, it could make sense. Something like buying 2-3 more properties at good discounts could compound your portfolio faster.

If you're just parking it in reserves or waiting for "the right deal" without a clear timeline, you might be paying that 6.15% for months while earning 4-5% in a HYSA - negative carry.

With $100k already in reserves plus your $21k equity in the property, you've got a pretty solid position. The refi gives you more firepower but also adds debt service.

What's your actual plan for the cash? That would help clarify whether this makes sense for your situation.

Janice Carter · Answer

Matthew, unless the cash out directly funds a high-return, forced-equity deal, I did hold off. The numbers and not the equity should drive the move.

Cash Purchase - Cash out Refi?

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