Is the cash out refinance worth it for me?

Question

I have a duplex Ive built some equity in. Would it be worth it for me to go from a 6.5% interest rate to a 6.87% rate if I could get 50k in cash out after all closing costs etc? This would bring my monthly cash flow to almost nothing due to the larger loan. Thats not including vacancy/repairs etc. I have the opportunity to make 3% per month  on other PML investments. I could also look into buying another rental with the cash out proceeds. I know many investors do cash out refi's for down payments on other properties, Im just a little nervous bringing my cashflow to basically 0. Any advice would be appreciated.

Jay Hurst · Answer

Maybe look at a LOC second mortagge to keep your first mortgage in place. That way if you are lending your funds as you mentioned above at 3% a month then you can pay down the line if you do not have a project to lend on, then repeat by drawing down when you. Yes, yuo will pay more then 6.875% but you will not be paying anything when you do not need it.

Also, if you run out of investments to fund you can pay off the line and close it, On a cash out refi, you cannot do that unless you pay off the much larger full balance.

Deborah Wodell · Answer

If you're confident you can consistently earn 3 percent monthly through private money lending or another solid investment, pulling out the 50k could make sense even with minimal cash flow. Just make sure you have reserves in case of vacancy or repairs since you’d lose your cushion. Cash flow isn’t everything if the equity can work harder elsewhere, but you’ve got to be real about the risk and your comfort level. It all comes down to your long-term strategy and how aggressive you want to be.

Jay Hurst · Answer

We do them every day, but do not lend in OH.

John B. · Answer

Thats exactly why I wanted to get the heloc and not a refinance however the heloc has proved to be almost impossible to get on an investment property in OH in an LLC (not my personal name).

Patrick Roberts · Answer

Lots of moving parts. How risky is the new use of cash and what will the cashflow profile look like from it? Do you have any reserves/emergency liquidity, or will this tie up all of your cash?

Erik Estrada · Answer

Hey John,

I honestly think you would be putting yourself in a tough spot if you are unable to increase the rental income to offset the higher mortgage payment. You should also factor in closing costs, as you wouldn't be "saving" through this refi.

Is there another property you own that has a bit more wiggle room?

Sean Martin · Answer

For me personally, the original unit would have to at least break even after ALL expenses. I’m actually doing this now. Cash out refi to a slightly higher rate. I’ll be pulling out about $50k or so as well but hitting break even on the original. That’s my rule, to not violate cash flow on the other end. In this case I would maybe take out a little less cash. Maybe 40-45k? You will then have to decide if that’s worth it, if it’s enough cash for a new deal on the other end.

Is the cash out refinance worth it for me?

Most Popular Reply