Cash out refi to turn current home into rental and use cash out towards new home

[Garrett Matthew Hester]

Hello, 

I'm looking for any perspective as I have no real estate experience. What are the thoughts about using a cash out refi to pay off current mortgage, rent that property, and use cash towards new home? I'm brainstorming the idea so I'm curious about what factors, if any, make this strategy work. We live in the Atlanta suburbs so we've built up good equity and rental prices are high. We owe $210,000 with a 3.2% interest rate and value is about 480,000. Assuming interest rates go down within a couple years, the idea works be to refi at that time to hopefully get a similar interest rate. The overall goal is to have a reasonable way for supplementary income, not necessarily interested having my than one rental.

[Jaycee Greene]

Hey @Garrett Matthew Hester, welcome to the BP Forum! Most residential mortgage lenders that I work with max out their LTVs on primary residences at 70%, which would mean a loan of $336k. Keep in mind this will be at a much higher rate than your current 3.2% interest rate, so I'm not sure if paying off the existing loan is a great choice. If you really want to supplement your income, my thought would be to take out a HE loan (or some other 2nd position loan) and use that to fund a down payment on a property.