What would you do?

Question

"We're not broke, we just don't have any money." -Phil Knight: Shoe Dog

What would you do? I'm going over options on a cash-out refinance. I've been expanding in secondary markets the last 24 months and putting every bit of cash from my W2 job into the down payments. Have I been expanding? Yes. Am I liquid? Absolutely not. Everything in life is situational, but which one of these options would you choose? I'll keep the numbers simple, 75% LTV on a condo appraised for $103,000 ($77,250 loan amount). I owe $57,000 on the property, collecting $1,050/month in rental income. My current rate is 4.75%, all 3 options are for a conventional 30 year fixed loan. Interested to see the way other investors think.

Rate, all in monthly payment, closing costs

1. 4.875%, $792/month, $4,000 closing costs

2. 4.75%, $787/month, $4,600 closing costs

3. 4.25%, $764/month, $5,600 closing costs

Regards,

Nate Barbee

Nate Barbee · Answer

@Jason Hirko Good point, I elected to go with the higher rate as well. Gearing up for the next investment is more important at this stage. Not to mention that $28 will be less valuable in 5 years due to inflation while the property value and rental rates are projected to increase.

Jason Hirko · Answer

@Nate Barbee I would do the 4.875% - you pay an extra $28 a month, but save $1,600. After about 5 years, that's going to cost you money, but by then, you should be more liquid and it will have been worth it, right?

Jeff Wallace · Answer

@Nate Barbee

So I'm replying to your post not to answer your question, but to comment on your statement about liquidity  -   WAY TO GO!!  It seems like I am FLAT BROKE at least once a year - I've come to believe that it means I am doing something right --- then again I may be completely wrong - as for your question.... In the big scheme of things whichever option you choose will not make a big difference

Jason Hirko · Answer

@Nate Barbee And always remember - income and cashflow are not the same thing! Good luck!

Nate Barbee · Answer

@Jeff W. You are playing it right Jeff! The portfolio doesn't grow if your money is hiding away in the bank. Although I do plan to stow away cash awhile in case we see the market go in a different direction. But you can't let lack of funds get in the way of a good deal.

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