Refinancing with cash out , to get all money down back

[Maggie G.]

Hi. My name is Maggie,  I am a new to Biggerpockets. I heard few  podcasts on Biggerpockets  website  about  starting out to invest  with refinancing with cash out over  and  over again to buy one house after another house  .  Few investors recommended to  buy house  then refi with cash out all  money down and buy another house, so my question  is:  " How can you refi  with cash out to get all your money if bank will only give  80% of your equity"? How can you get all equity  out to buy another  home??, I just dont understand  how does it work,  can anybody explain the process  for  me?? 

I bought my single family home  a year ago  , I put 20%  down, how can I get that  20%  out to  buy  another  investemnet  home? Is it possible> What are  these  investors  talking  about?

I appreciate your help . Thank you. Maggie

[Arlen Chou]

@Maggie G. there is nothing out there that will give you a step by step process to do well in REI. This is because books about strategies are written for "general consumption" not specific application. On the other hand, books written about "specific events" are basically a historical recounting of a specific deal. So it is important for you to understand that the way that people do the "cash out refi" or use the BRRR strategy probably does not fit your particular situation. Over time, you might be able to change your current situation to more closely match the examples in the books, but right now there are a key points that don't match up. I believe that is why you are frustrated with the idea of "getting your money out" strategy.

In every one of the cases I have read about or done myself there was an appreciation aspect to each deal.  This could be through the market rising, or more likely through "forced appreciation".  In your case, you have your primary residence.  However, you live in a market where there has been no appreciation and it sounds like you might have negative appreciation.  This is the key to why your current situation does not align with what you are reading.  The books talk about tapping your "equity" in the property.  This is how you get your money out to invest in another property.  However, if your home is worth less then what you paid for it a few years ago, then there is no equity to tap.

This is actually one of the corner stones of the appreciation vs cash flow debates that rages on BP.  I don't intend to sound mean, but you are in the unfortunate position that many hopeful investors fall into; you have a home, but it is actually a liability and not an asset.  It is basically acting like a financial sea anchor and keeping you from making some forward progress.  

You are 100% right, "You have to have some money to invest!" However, it does not need to be your money...  Without knowing the details of your financial situation, besides selling your house, you have 3 basic options to TRY and get money:

1. Refinance:  I have no idea what your rate is, but if you can get your payments down you can eventually save some money to invest.  If your house is worth less than what you paid for it, then you will probably not be able to get any immediate cash out.
2. HELOC: Depending on your credit situation you could try to get a home equity line of credit. I personally like this method for myself, BUT I am in a high appreciation market. You must have a lot of fiscal discipline to use this strategy.  If you are not careful you can lose everything.
3. Other peoples money:  This could come in the form or loans from friends/family, investors or a "hard money" lender.  This strategy has obvious down sides and could also be disastrous

@John Kesner has some very good advice, but you have decided you cannot follow it because your house, the sea anchor, is a "home" not a "property" in your current mindset. Perhaps what you need to consider is to make your current home the rental and moving into the next property as your primary residence. If you make this mind shift you will open yourself up to the ability of getting a property for a lower down payment. I don't know your family situation or how many people are in your immediate household, but you could potentially get a small multi unit as John has suggested and add to your income. This is the "house hacking" strategy: buy a property as a "primary" residence live in it for awhile and then get another "primary" residence and move. After awhile you naturally fall into the BRRR strategy.

As a starting point, house hacking takes longer to achieve financial independence but it is an easier place to start if you already own your primary residence.

Best of luck to you!