Cash Out Multiple Choice

22 Replies

I am 31 years old, about to refi, and ready to buy my 2nd property. Hopefully a multi family unit.

My single family house in Denver is worth approximately $250k. I paid $125k. I owe $100k on a 4.65% 30yr fixed. My current mortgage is $900 total.

Current rental rates for my area are $1,800-$2,200 month.

I am 98% ready to close on a conventional refi and I'm having second thoughts on how much or if I should cash out.

The contract is written up at $70k cash out 4.19% 30yr fixed. New mortgage $1,190 total.

After I refi, ultimately I would like to purchase as many properties as they will allow me to, as quickly as they can. My Lender says I would be able to get one FHA loan (up to 4 units) with 3% down. After that 1st FHA, I imagine the next conventional loan would be a higher % down.

Should I:

A) Cash out $70k, and use it to put more $ down on my next purchase?

B) Cash out $70k, save it, and take advantage of the low 3% down?

C) Cash out $40k and keep my payments the exact same? $900 monthly

D) Don't cash out, refi to lower monthly payment, and cash flow an extra $200 per month? (Pay mortgage faster?)

E) Other (explain)

Any and all help is greatly appreciated. I may be missing more info but this should give you a brief view of my situation.

Thanks in advance!

I choose "E". I would take the cash out. Then I would find a market where property is more modestly priced than Denver. After getting to know my new market, I would buy something run-down for $40,000. Rehab it with $20,000. Get it appraised for $80,000. Refinance my cash back out with a commercial/ portfolio loan. Turn the property over to a property manager and go do it again.

Mike

Thanks for the input Mike! I will have to research a commercial portfolio loan. I never thought about it that way which is why I'm here! Basically I would get all my $70k back and have another property generating cash flow. Nice! What would be your backup plan?

Are you refinancing the entire mortgage. Would there be an advantage to pulling a HELOC as a second mortgage while you're still living in the property. Lower interest plus no principal payments might be a nice balance to getting the cash out but not increasing your costs much.

Option D doesn't really seem to get you to the goal you are aiming for, purchasing as many properties as you can, as quickly as possible. 200$/mo in extra cash flow will help pay down the mortgage quicker, but what would be your end goal in doing so? Owning the property outright? If you need to tap into the equity of your current home to have money to buy others, it seems as if refinancing or using a HELOC as @Micki M. suggested would be the better route. 

I have struggled with this subject as well (cash out-refi). I am certain everyone has their own reasons for doing so but if your property is cash flowing nicely and you do a cash-out refi to get a lump sum towards another home but wipe out your cash flow that doesn't make sense to me as a buy and hold investor.

I would choose option C. Basically, your mortgage wouldn't change at all and now you have $40k in your pocket to play with. Seems like a nice deal to me. I am in the middle of re-financing and wondering if I should tinker it a bit to do something similar. 

@Peter T. You're right about one thing for sure.  IOt doesn't make cents.  It does however make dollars.

Follow the cash.  If you leave your cash in a property's equity, it dies.  If you refinance it out, it comes to life in thenext deal.  Realize too, this is the same cash in both properties...doing double duty.

Spend that $70k one time and the return is only $200/month more than if you "used" that $70k more than once.  When you "spend" it on that first deal, the money is gone.  If you invest it in your next deal, you should be able recoverit AND cash flow higher on the next deal.

@Joe Villeneuve

Like I said, I am struggling to form my own philosophy on cash-out refi. For someone who just wants to own lots of apartments, I understand doing it (but I don't agree with it). Me personally, I want to buy and hold quality, cash flowing units with good COC return/cap rates for my neighborhood.

Cutting into my cash flow to suddenly have a nice lump sum of cash for another down payment on a home isn't a bad idea and is one that I will kick around. I just don't like the idea of changing my current cash flow to do it, or the idea that all my homes would be fully leveraged on the assumption that nothing can go wrong (neighborhood changes, taxes increase, rents drop, housing busts, etc). That's how people get upside down, which is why I like his option of taking out $40k and his cash flow doesn't change at all. That's a bit more conservative than you but still a win to me. 

@Aaron Rocha in addition to what @Micki M. said about the HELOC is that you can get more cash. With a HELOC you can access probably up to 100% of your equity. So you would have about $150K of equity. The down side is that HELOCs are generally variable rates so when things turn your payments are going to climb. Westerra CU here in Denver has a very liberal underwriting software and they will lend up to $100K without the cost of a formal appraisal. Very easy and low fees.

Can someone explain how he is able to cash out $40k but his mortgage payment remains unchanged. I have a similar situation. Thank you in advance.

Can someone explain how he is able to cash out $40k but his mortgage payment remains unchanged. I have a similar situation. Thank you in advance. I think it's the lowered interest and the financing the remaining principle into a new 30year loan.

Thanks everyone! It seems like the consensus is to use the money for additional properties while keeping the cash flow at a max. I do like the option of taking $40k out and keeping the payments the same.

CM Williams- I refinanced to a lower rate, extended back out to a 30 year loan and got rid of mortgage insurance.

Is it smarter to use all of the cash out on 1 property to bring the monthly payments down or or spread the money across multiple properties?

Thanks again everyone

Bill S.

I am not too familiar with the Heloc's work for investing into other properties. I will have to research that.

**Update 4/30/15**

I refi'd $70k out and put $55,000 down in another market on a 6 plex with a great ROI. I still want to live here in Colorado. I can go 3.5% down on my next property. I have considered moving into a multi family up to 4 plex and renting out the other units. Or purchasing a very nice home with great equity for me and my wife.

With $15k left over I could make a down payment on a property valued around $428k give or take.

Here's the next multiple question;

What would you do with the other $15k from the Refi?

A) Purchase a single family home you found below market value with great sweat equity in a hot area you have always wanted to live in?

B) Purchase a multi family while you have the option of coming in at 3.5% down via FHA owner occupy?

C) Other, please explain

Thanks again for any and all help!

@Aaron Rocha If money is the objective then B). It's my opinion that option A) does not exist in the Denver market on the MLS. You might find something off market.

Next move totally depends on your living preferences at goals at this stage of your life. You only have to live in option B (assuming you can find one) for a year I think to satisfy the loan requirement, and by then you may be in a better position to still buy a house where you want to live (and of course add the rental income from the unit you were living in). What's that year worth to you?

@Aaron Rocha

I think option B is your best and easiest bet. If you can find a property that is below market value in a hot area right now, more power to you but you are not going to find it on the MLS.

Thanks Bill S. I appreciate the input and agree that if money is the main object than I should choose option B. I feel like it's my one and only chance to purchase a multi family investment for such a small amount down. I'm just afraid that this great opportunity I have on a particular single family is too good to pass up.

Walker Hinshaw

I have this situation below - The below chart is from various properties. All are on 15 or 30-year conventional loan at 4-ish % It's going great everything is cash flowing. Unfortunately, as you can see there is too much equity - based on a 30% down on each property I should be able to cash out a good amount of equity and go buy something and repeat. I Called a few banks and they said that I have more than 4 mortgages (total 7 +Primary + HELOC) and that I cannot even Refi any single property and would have to do a commercial loan. My problem is that the current rates are good , very good cash flow , but I need to cash out equity either one by one or as a whole. What do people typically do in these situations? What questions to ask commercial lenders ? Any thoughts on slicing and dicing these options ?

x Cash Out Based on 70% LTV$100,800.00$64,527.40$65,317.00$88,890.20$111,428.80$109,200.00$30,100.00

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