Cash Out and Re-Invest?

Question

Hey guys, I have 2 properties that I own. I bought one from my parents for a great deal and think I have about 80k in equity in it. I've been thinking about doing a cashout refinance and taking that money to re-invest in some other properties. Any thoughts or suggestions?

I'm 22 years old, a licensed realtor, and i'm in metro Detroit area. (just to give you an idea of my situation)

I'm 22 years old, a licensed realtor, and i'm in metro Detroit area. (just to give you an idea of my situation)

Wendy Patton · Answer

@Hayden Hirzel you are very young and have some great assets already.  I agree with most everything said above.  Do be careful to protect what you have now.  If your assets are paid off it is hard to ever lose them or get into financial trouble, however you are also young and have many years to make up any issues that could arise.   Right now interest rates are so low and leveraging those can also be a good choice.  Also there are so many other strategies that don't require any of your own money or credit:  lease options, land contracts (might require a little cash), subject tos, 0% financing, wholesaling, etc.    Also learn about real estate cycles, as we are overdue for a correction and it could come at anytime.   That is when those who aren't liquid, or are over leveraged, could be in trouble

Drew Sygit · Answer

@Hayden Hirzel I agree with Chris. Do not over-leverage, and even more importantly, protect your cashflow. Have seen a lot of investors lose properties to foreclosure because they cut their cashflow down too much.

Where are you looking to buy more rentals?

Drew Sygit · Answer

Not many great deals on the MLS anymore! Recommend checking out Pontiac or Hamtramck before Detroit - unless you are really familiar with Detroit and all its risks for rentals.

If you want to stay in the 'burbs, check out Hazel Park, Oak Park, Warren, Eastpointe and Harper Woods.

Hayden Hirzel · Answer

thanks for the feedback, appreciate it!

Drew Sygit · Answer

We can meet up next month at this:https://www.reiaofoakland.com/

Hayden Hirzel · Answer

Thanks Drew, appreciate it! I see your right up the road in Birmingham. Let's connect.

Hayden Hirzel · Answer

One of my houses is in Madison Heights so i'm thinking there or possibly Detroit. Really, open to any good deals around Metro Detroit. I'm just using the local MLS to look.

Michael Heisterkamp · Answer

Great advice above, do not over leverage.  However there is nothing wrong with your over all idea.  Have you thought about partnering with a local flipper to help them take down deals?  The capital you can get out of your property can be a good way to get equity shares in flips.

Chris Coleman · Answer

@Hayden Hirzel putting your equity to work in a new investment is generally a great strategy as long as the numbers work.  Just a few things to consider when doing a cash-out refi:

1. Do not over-leverage. That is, do not get a new refinanced mortgage for more than what the property is worth or would be worth if the market were to drop by 15%-20%.

2. Make sure that your existing property will still safely cash flow after the new mortgage or loan payments kick in. The new refinanced monthly payment are more than likely going to increase.  And that’s fine, as long as it does not increase so much that it erodes your monthly cash flow to an unhealthy level where you’re upside down or too close to it.

Cash Out and Re-Invest?

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