How should I handle reinvestment of cash from a cash out refi?

1 Reply

We recently did cash out refis on our primary home and investment property for the purpose of putting together capital to continue acquiring investment properties. Our plan is to use these funds for down payments for 1 or more investment properties. Considering the fact that I am paying interest on these funds, how should I account for this in the financial analysis of future investment properties? Technically, should it be treated as purchasing a property with 0% equity if the down payment is paid with these funds?

Thanks in advance for your insight!

I think I understand your outlook: You consider the refinance money as costing interest because now you are paying interest on the funds that you don't own in the primary and rental residence.

If that's how you see it, I can't disagree with your philosophy, and it shouldn't stop you from investing as if the money were "interest free."

Though the cost of a refinance is greater than the cost of a HELOC, you can now use those funds, which were locked up in equity, to leverage more income, and a larger pool of future equity.

As long as you stay within the 20- to 30% equity on property rule, it makes most sense to obtain as many properties as possible with the money, as that will accelerate your future cashflow and net worth.

But I'm making a lot of assumptions about your aims in this assessment. Best of luck!