BRRR - How to Cash Out / Refi

[Kyle Weckman]

Hi All,

I mostly understand each step of the BRRR strategy with the exception of the refinance piece. I am wondering, when you refi and pull cash out are people doing that via a line of credit or a home equity loan of the original loan? Are you keeping an 80/20 ratio to avoid PMI and therefore only pulling out the equity you have above that? Are there other options I am missing?

I have 3 units that have a lot of equity and would love to start leveraging it for down payment on additional units instead of saving up each time going forward. My only concern is that if I use a line of credit of home equity loan the interest rates are pretty high and I doubt the numbers would make sense when combine with the other loan needed. 

Any suggestions would be appreciated!

Kyle

[Fyzl Atmar]

Kyle Weckman great question! You have multiple options when it comes to getting cash out. One method like you mentioned is a second or HELOC on a property. This allows you to tap into funds without changing your primary mortgage and is one option. The other and better option in my opinion is doing either a conventional cash out, FHA cash out, or if your a veteran a VA Cash out refinance. If it's your primary residence SFR your able to pull cash up to 80% LTV on a conventional or FHA but up to 100% LTV on a VA loan. If it's a SFR but a second home/investment property and not your primary residence your max cash out on a conventional or FHA is 75%. VA does not do second home/investment property. Additionally if it's a multi-family as your primary residence max cash out is 75% on conventional & FHA and 100% on VA. Multi-family for a second home/investment property has a max cash out of 70% on conventional & FHA.
In my opinion it would be best to do an analysis of your properties and find out where the most opportunity is for equity while following the guidelines above and seeing if you qualify with credit requirements and DTI to pull cash out from that single property. After which you can rinse and repeat the process with your following properties in a timely manner which can range from 1 to 6 months after the last transaction depending upon your credit and income strength.
Every scenario is different and sometimes a HELOC could be a faster and quicker alternative while other times refinancing into a new mortgage might be the better option. Feel free to reach out and I would be happy to look over the scenario for you my man! Your heads in the right place though, utilizing stagnant equity for down payment into new properties. Best of luck!