Cash out refi VS new loan for rental property

[Corey M.]

Hi,

I have about $340k of equity in my home that I'd like to put to work. I'm currently paying 3.625% interest on a 30 year fixed, and am considering taking out $250k in equity, which would likely be at a similar interest rate. 

If I want to buy a rental property for $100k, but only put 20% down, how would I do this without creating another loan on top of the refi? It seems that if I were to get $250k out, I could just buy the house outright for $100k, but then there would be no leverage. Or would there be since the cash out refi loan is larger than the original loan on my property? I'm sure the cash out refi interest rate would be lower than a rental income rate, so I'm trying to understand the best way to go about this. 

[John Warren]

@Corey M. I think you are confusing yourself a bit with this post. If you pull money out of one deal and redeploy it, then that money is essentially out of the first deal. I don't count the leverage on deal 1 as part of the leverage on deal 2. 

If I were in your shoes, I would pull as much money as makes sense (make sure you still cash flow) out of deal 1. This would allow me to then buy two or three more deals with financing in place. This will dramatically improve your cash flow and equity growth as compared to just buying one more house. In the single family world, just the appreciation alone can be a huge driver of returns and if you can pick up multiple properties then you can really grow your wealth.