Refinancing as a Scaling Strategy — Smart or Overleveraging?

Question

Property managers,
I’ve noticed more landlords pulling cash-out refis to reinvest in additional properties or improve existing ones.

Do you see refinancing as a momentum builder for scaling, or does it add too much risk to long-term stability?

Would love to hear how you (or your clients) balance growth with risk when it comes to refis.

Stuart Udis · Answer

As @Drea Na stated, cash out is difficult. I'd imagine a partial return of capital is more likely.  Leverage is a valuable tool if used responsibly. Most don't and that's often an investors downfall. Another reason why investors fail to use debt responsibly is the inability to distinguish between 75% LTV on a $1M property and $100K property. It's far easier to find yourself upside down on the 75% leveraged $100K property because many costs associated with owning and operating real estate are harder to absorb with the $100K property with some fixed or nearly fixed whether its a $1M or $100K property.

Drea Na · Answer

Hi Tracy,

A cash out refi can make sense depending on the circumstances. I'm surprised you're seeing a lot of those at the moment - in my area, interest rates haven't come down enough for the refi to make sense.

Nevertheless, with the right circumstances it is absolutely a vehicle one could use to scale without too much risk - for example if a property was a rental and paid off but had a lot of equity, it could make sense to do the refi.

Ultimately every situation is different, but it is definitely a strategy that works for scaling. David Greene writes about this in his book BRRRR.

Refinancing as a Scaling Strategy — Smart or Overleveraging?

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