Cash Out Refinance to Buy Another Investment Property

[Rob Liguori]

Looking for a little insight!  My wife and I own a duplex and are thinking out purchasing our next investment property in the next couple of years.  Our plan has been to save up the capital for the down payment, though I've heard about doing a cash out refinance and using that for the next down payment.  We have enough equity to do this, but from a cash flow perspective I'm trying to wrap my head around how it works.  If we were to refinance our current duplex and take the money, wouldn't we be increasing our current mortgage payment and cutting down our cash flow from the duplex?  Maybe the strategy is purely from the perspective of property appreciation?  I'd love to hear other peoples' thoughts!

[Tristan Gardner]

Rob, 

Yes indeed you'd increase your mortgage thus decreasing your cashflow, but don't stop the thought there. 

Let's say you reduce your cashflow $100 by refinancing your current duplex, then use that capital to go buy another duplex that cashflows +$300. Now you've recaptured that $100 and have another asset that's probably appreciating over time, more doors so less overall vacancy, and a larger portfolio! 

Play the long game my friend and you'll go far.