Cash out Refi VA Loan

[Lucas Rowell]

Hello & Good day BP community, hope everyone is having a great start to the day.

We have two homes that my wife and I own that we purchased utilizing my VA loan benefit, that are now cash flowing properties. One was purchased 10 years ago the other more recently.

I wanted to do some comparing and contrasting on strategy on one of these properties to see what folks think.

- The house we have owned for 10 years has a good equity position from having a tenant paying down the loan. I was contemplating a Cash out Refi to A. lower interest rate 10 years ago was 4.75% (not planning to sell great cash flow) B. Use the cash out funds to purchase a 2nd home in the same area low interest rate to Cash flow . C. We would get back a portion of VA entitlement to then be able to use on our next primary residence purchase. (2020 Loan limits are supposed to go away for VA loans)

My hesitations are the following

- Seeing that residence is no longer a primary residence the Refi would not be able to be a VA loan (to my knowledge) so we will need to pay closing costs a down payment +PMI monthly on a home we already own. I am correct in this yes? Seeing we were looking to use a majority of the funds to do a down payment and closing costs on a second house, a cash out might be a wash given the above factors? Outside of the interest savings realized, and freeing up Va entitlement (1st home already own dp+cc +2nd home dp (25% investor financing conventional)+cc

- Does it make more sense since I have liquid cash to utilize that to get a conventional loan to buy another property and let the equity sit in the subject property until really need it and just keep paying down the mortgage and doing extra payments annually towards principal?

Thank you in advance :)

We are looking to aggressively grow our portfolio of rental properties to include additional single & multi family in the next few years and just working on our strategy.

Thank you for any insight : )

Cheers,

Lucas

[John Warren]

@Lucas Rowell when you look to cash out refinance you will definitely have to pay closing costs in most scenarios. The closing costs don't tend to be that much on a cash out refinance in my experience, and I would totally do a cash out refinance as long as you can pull a meaninful amount of money out of the property. 

One thing you should know about cash out refinances, though, is that you will not get the best interest rate out there. In today's market, don't be surprised if you end up getting an interest rate that is 1% or more higher than what you could get on a owner occupied property. Also, the interest rate shouldn't be the primary concern as your tenants pay the interest rate. Focus instead on your return on equity.