Cash out refi for my first deal?

Question

Hello BiggerPockets!!!

I am interested in starting my REI career and found a deal that perked my interest.

I don’t have a ton of cash on hand but have well over $100k in equity in my personal home.  Is it a bad idea to do a cash out refi on my personal residence for my first deal? Not really interested in taking all of the equity out, looking at around 50-60k. Any and all info is appreciated as I am new to this and looking to dive in!

Lance Leonard · Answer

@Kate Johnston Thanks Kate! I appreciate the thought.

Darius Kellar · Answer

@Lance Leonard Taking on debt was tough for me to come around. But what totally changed my mind was really Facebook. My third year into RE, we posted a house for rent on Facebook. At that time it was my first time renting a property utilizing something else other than word of mouth marketing. When we posted the property to FB I got so many phone calls and messages that it was literally breath taking especially considering I inflated the rent price. So that's what ignited me to get more financing and buy anything and everything in my area. Many are afraid of investing in low income areas but the rent margins and demand for rentals is ALARMING here.

Lance Leonard · Answer

@Cory Mccarthy would love to meet up soon !!!

As far as good tenants, both units in the property have been occupied by the same people for 5 plus years and they seem happy in the property.  And they seem relatively happy with the place.

Hillel Sperlin · Answer

@Jerry Padilla Is 80% of LTV minus your loan the most you can get for a HELOC or a cash out refi?

Does anyone know any banks that will do 90%?

Cory Mccarthy · Answer

@lance Leonard - I am in the same market (From Fenton to Brighton, 3-5 miles on each side of 23) and did the same thing (took out a HELOC) to fund the first BRRRR strategy and have been very satisfied with the results to date.  Cashflows about $300 per month and refinance got all of my money back.  As long as you have run the numbers and know that they are good and have a great tenant (big key here), doing the HELOC is a great way to get started.  Would be happy to sit down over a cup of coffee or a drink some day if interested and I can share some of my experience to date.  Good luck!

David Kramer · Answer

I definitely don't think that is a bad idea as long as you are in a position to make the additional payments on your new, larger mortgage. Closing costs will eat some of that cash out money up (that is one area you save on a HELOC), but you might make that up with a longer amortization period and potentially better rates with the 30 year refinance.

Lance Leonard · Answer

@Darius Kellar Thanks I wish I could have been in the market sooner, but I wasn’t in the right place in my life to do so. I’m not looking in highland as it’s still a fairly rural area, but more in the Fenton area as it’s growing pretty steadily.  I appreciate the taking on of debt advice.  That’s one thing that makes my wife nervous but she’s beginning to understand the premise.  Good luck and keep up the success!

Darius Kellar · Answer

@Lance Leonard

5 Years ago when I started investing in real estate the one thing I would have done differently was refinanced faster.  At that time the market was still coming down in my (Pontiac) area. Thank god I was still able to get really good deals but I probably missed out on an extra 500K because I could not buy fast enough while home prices were low.

Understanding how quickly the market can change I would have refinanced a hell of alot sooner and took on as much debt as I could. I see it this, as long as I'm able to cash flow really well and get the properties under value then why not max the cash out refi and go make triple the money back. I am not sure how Highlands market is though...?

Lance Leonard · Answer

@John Binkley Speaking with my banker he suggested that getting a heloc for investment properties was frowned upon and might make it harder to get approved if they are aware of the reason for getting the heloc in the first place... I do understand the lack of interest being paid with the heloc.

Jerry Padilla · Answer

@Lance Leonard

For your primary home you can pull out up to 80% LTV if it is a SFR. With cash out financing.

Cash out refi for my first deal?

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