Cash Out Refinance on my own home?

Question

I currently own a home that I had used house hacking to pay for most of the mortgage every month and save part of it for a full renovation of the kitchen and floors. I purchased my house for $189,000 a couple years ago (2019) with a 15k down payment current interest rate is 4.25%. According to Zillow and houses that have sold around mine very similar in size and lot, it states my house could be worth around 266K. I spoke to a real estate agent and she stated she thinks she could get upwards of 300k. This is without having an appraisal of all the new floors, New Appliances, New Roof, New A/C, and new water heater.

I want to get into real estate investing, have 20k saved but I was planning on using it for a ring. I was wondering if it would be even a remotely smart option to do a cash out refinance to get money for another downpayment on an investment, or do you think I should sell the house completely and reinvest the equity elsewhere?

Any thoughts on getting the capital to purchase another rental would be great.

Paul Riley · Answer

Hi Account Closed,

Congrats on your success with this deal!

If you can do a cash out refi and still have the property cash flowing with the new rate, then I think it's something you should really look at.

You'd then have some tax free capital go out and get your next deal.

I personally think investing in real estate notes would be a good way to go but that's just my thing!

Zach Wain · Answer

Account Closed - You are in a pretty good spot to leverage and add real estate.  If that is your plan, you have a few options.

1) Get a HELOC and keep the balance at $0 until you are ready to buy your rental home, so you do not pay interest in the meantime.  Most lenders will go to 80%, some to 90% combined loan to value.  If your value is $300k, that is about $100k

2) The better loan term approach would be to do a cash out refinance of your first mortgage and I would recommend you stay to 75%-80% loan to value.  If you need more money, get a small HELOC after closing for the rest.  Going above 90% cash out means worse terms, and its likely not worth it

You have room to leverage if you want to, and since your rate is 4.25% a new refi will not cause a massive step up in interest rate.  Especially if you remove PMI too!

Nathan Gesner · Answer

If you want to be an investor, you should learn how to crunch the numbers to determine if a property is a good investment. Just because you can rent something for more than the mortage doesn't mean it's a good investment.

Here's a guide that describes what good cash flow looks like and how to analyze a property.https://www.biggerpockets.com/...

I would analyze your current home to see if it's a good investment right now. If it is, analyze it again to see what would happen if you borrowed equity. If you borrowed $100,000 of your equity to invest in another property, that $100,000 is going to cost you $500 or more on top of your current mortgage. Will the first property still cash flow after payments of $1,400 a month?

Jay Hurst · Answer

If you have something to do with the funds it can make sense even though your cost of interest will be going up simply because overall rates are higher then a few years ago. But, the question is what you would invest in worth the difference. Assuming credit score is 740 or higher we lend up to 90% of a owner occupied single family home. If the property is worth 300k that would net you close to 100k to invest.

Cal Martin · Answer

Awesome question, good thing you are close to a lot of great places to invest

- Buy an awesome ring for $5-6k

- Cash out Refi

- Take ~$110k and either:

1) Buy value add multifamily with owner occupied financing and move into it and use the remaining $ to rehab the units and rent out your current primary, even if it doesn't cash flow a ton or at all.

2) Use $110k as a 20% DP on a MF investment and continue living in your primary.

Billy Daniel · Answer

It's a good problem to have!  First off, its none of my business but don't spend $20k on a ring!  Secondly, never trust Zestimates!  Always get a CMA done by a local professional.  Thats the best way to understand your value.  Having a new roof, new A/C, and new water heater will not really increase the value of your home.  It may help is sell faster, but won't affect the price much (if at all).  The same is true for flooring.  People just expect those things to be in good working order when they purchase.  The appliances could raise the price, but only if they are top of the line models.

I'm assuming you have no kids and are single based on the ring.  If it were me, I would sell and purchase a multifamily and continue to house hack.  A $100k down payment could get you a nice place in most markets!