Would you refi now or wait? DSCR is 1.05 but rate is higher

Question

Hey all, looking for some real opinions here.

I have a borrower in Boynton Beach, FL with a 4-plex. He bought it two years ago, fixed it up himself, and now it's fully rented.

Current loan is 7.5%. He can refi into a DSCR loan now and pull out about $60k in cash to do his next deal. DSCR comes in around 1.05. Payment goes up a little, but he gets the cash to buy deal number two.

Or he can wait 6 months, hope rates come down a little, and hope the rents hold. If rents go up $100 per unit, DSCR goes to 1.20 and the deal looks a lot better.

He is torn. I am torn too.

On one hand, cash now means he can buy while everyone else is sitting on the sidelines. On the other hand, refinancing at 1.05 DSCR leaves him with almost no cushion if one tenant moves out.

If this was your property, what would you do? Refi now and take the cash, or wait and build more cushion?

And for the lenders here, what DSCR do you actually want to see before you tell a guy to pull cash out? 1.0, 1.15, 1.25?

Appreciate any honest takes. Trying to give him good advice, not just close a loan.

Sagi Gliksman · Answer

A 1.05 DSCR in South Florida is playing with fire, especially because one insurance hike or a single vacancy will put the property in the red immediately. Trading a 7.5% rate for an even higher one plus thousands in closing costs and a new prepay penalty just to pull out $60k rarely makes sense. Unless that cash is going into an absolute home run that easily covers the spread, I would leave the current financing alone.

Muyees Ayilara · Answer

Sagi, you nailed it. That's the part I keep coming back to — South Florida insurance. In Boynton, one insurance renewal can jump $3k-$4k a year and wipe out that whole 1.05 cushion overnight. It's not like other markets where the payment is stable. And you are right on the prepay too. He would be paying thousands in closing costs plus a new prepay penalty just to get $60k out. If that next deal is not a home run, he just made his good property a stressed property.

I think I'm going to tell him to sit tight, let the rents catch up, and revisit in 6 months when we can get closer to 1.20. Keep the 7.5% loan, keep the cash flow. For cash-outs like this in Florida, what DSCR do you personally want to see before you feel good about it? Are you at 1.25 minimum with insurance the way it is now?

Chris Colton · Answer

I would wait on this one. At 1.05 you have almost no cushion, and one tenant moving out puts you under. The $60k is tempting, but I would rather see the rents actually come in first and get closer to 1.20 before pulling cash out.

Muyees Ayilara · Answer

Thanks Chris, I appreciate the honest take. That's exactly what I'm worried about.

At 1.05, one vacancy and he's underwater for that month. The $60k is tempting because he already has the next deal lined up, but if he has to feed the property every month, that next deal won't help him.

Do you use 1.20 as your personal rule for cash-out? Or would you go lower if he had 6 months reserves sitting in the bank?

I told him if we wait and get that rent bump, we can pull the same $60k with a lot less stress. Just trying to talk him out of rushing it.

What market are you investing in around San Antonio? Are you seeing rents hold up there right now?

Ametria Chaney · Answer

I'd lean wait here too, but for a slightly different reason: the question isn't just the rate, it's whether that $100 rent bump is real. Before your borrower banks on a 1.20 DSCR in six months, I'd want to see actual rent comps for similar four-plexes in Boynton Beach — not hoped-for rents, but signed leases. If the comps support it, waiting is an easy call. I'd also stress test it the way a lender will: one vacancy plus one insurance increase, because in South Florida those two move fast and a 1.05 leaves nothing to absorb them. Pulling $60k out now raises the payment on every unit, so the cash for deal two comes at the cost of making deal one fragile. A good local agent can pull those rent comps in a day, and that one check usually settles the wait-or-go question better than guessing at rates.

Devin Peterson · Answer

I’d be cautious about refinancing solely for the $60k. At 1.05 DSCR the cushion looks thin, and in South Florida insurance, taxes, and vacancy can move quickly. I’d compare the incremental payment and closing or prepayment costs with the realistic return on the next deal, then stress-test a vacancy and higher insurance and set a reserve floor before deciding. If it still works under conservative assumptions and the cash goes into a strong opportunity, taking it could make sense; otherwise, keeping the 7.5% loan and revisiting after rents or the numbers improve seems prudent. I’d underwrite from actual income, expenses, and insurance quotes rather than assume rent increases.

Chris Colton · Answer

Sorry, missed this earlier. 1.20 is not a hard rule for me, I just do not like pulling cash out when there is barely any cushion left. If he had 6 months reserves sitting there I would feel a little better about it, but I would still rather see the rents actually come in first. I am in San Antonio, still pretty new with one door, so I do not have enough of my own rent history to tell you rents are holding. I am watching the same numbers as everyone else.

Muyees Ayilara · Answer

Chris appreciate you circling back on this, that clears it up. Yeah I get what you mean now on the 1.20. It's not like it's a magic number. It's just at 1.05 after pulling 60k out he's got nothing left if one tenant dips. That part is what had me stuck too. The reserves point is real. If he had 6 months sitting there I'd feel way better about it even at a tighter DSCR. Without it he's one vacancy away from scrambling. And I'm with you on waiting to see the rents actually hit. I told him the same thing — let's not refi off rents we hope we get. If that $100 bump actually shows up on the leases then cool, run it again and it looks totally different. Thanks for being straight about where you're at too, one door and watching the same numbers as everyone else. That helps more than someone acting like they got it all figured out.

Muyees Ayilara · Answer

Ametria, you nailed the part I was missing in my head. You're right — it's not just the rate, it's whether that $100 bump is real. I was running it as "if rents go up" but I haven't actually pulled signed leases for similar four-plexes in Boynton Beach to prove it. Hoped-for rents don't pay the mortgage. And your point on making deal one fragile to fund deal two is exactly what I'm worried about. Pulling $60k out sounds good until one vacancy plus one insurance jump hits, and then that 1.05 has nowhere to go. I'm going to get real rent comps pulled before I tell him anything else. If the comps don't support the bump, waiting is the easy call.

Muyees Ayilara · Answer

Devin, appreciate you jumping in. You're right on the stress test. I ran it with one month vacancy + insurance up $3k and it goes red fast at 1.05. That's what has me leaning wait If the $60k was going into a deal that was already under contract with real spread, I'd think different. But right now it's just cash to go find something — not worth tightening up a good property for. Leaning toward telling him to sit tight and revisit when rents catch up.

Would you refi now or wait? DSCR is 1.05 but rate is higher

Would you refi now or wait? DSCR is 1.05 but rate is higher

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