What Are the Pros & Cons of Cash Refinance?

Question

If I'm understanding correctly, for a cash refinance...

If you buy an investment property, fix/repair it, and get a higher appraisal, you can then take the $ difference and put a down payment on another investment, etc.

If so, are there tax implications with a cash refinance? Does it get considered income?

Any recommendations on what to do with a cash refinance? (Ex. do you recommend that it's $100k+ before doing this and putting a down payment on another property?)

What are the pros and cons based on your experience? (not just a general list of what Google says, but based on peoples' actual experiences)

John O'Leary · Answer

Most lenders will cash out at 75-80% (max) on the repaired value with three months seasoning. So if you buy distressed and build in some additional equity via the rehab you can cash out when securing the long term debt. The cash you receive from a cash-out refinance is not considered taxable income because it’s essentially a loan. You’re borrowing against the equity in your home, so the money is not income but rather loan proceeds that you’ll need to repay.

The pros of a cash-out refinance for most investors include the ability to build their portfolio and scale their real estate investment business.The cons could be trading a lower interest rate for a higher one and increasing your loan-to-value (LTV) ratio.