What are the pitfalls of cash-out refinancing a property?

[Blair Murphy]

Hi,

I have a noob refinance question. I bought my first property (4-plex) 3 years ago in California and my plan has been to play the long game and try to cash-out refinance every 2 or so years to put towards another like property. I’ve filled out some refinance applications and have found out that with the increase in value of the property over the last few years among other factors, I am able to get about $40,000 - $50,000. My current interest rate is 4.125% and I’m being quoted that the cash-out rate would be around 4.8%. I currently owe about $162,000 which I’m assuming any cash-out amount would be added to the $162,000. Would this new amount (cash-out + $162,000) then be at 4.8%?

This is all happening fairly quickly and I don’t want to make any major mistakes as I’m trying to set this up for my son. What are some things that I should watch out for? It seems like all it is is, I qualify for a cash-out refinance, I put that amount towards a down payment on another duplex or 4-plex, and I would then be making 2 mortgage payments instead of 1 currently. My internal alarm is going off telling me that there’s something that has to complicate this as it all seems too simplistic.

Thanks in advance for any input!

[Joe Villeneuve]

The simplest things in life are made complicated by those that don't understand the simplicity...or can't believe it is that simple.

You are exchanging 1 mortgage payment for 2, and 1 cash flow for 2...and, if you refi out of the 2nd property, 2 cash flows for 3...and so on.