Should I cash out in this environment? 43% CoC to 115% CoC!

[Cameron Lam]

Hi guys!

I'm partnered up in a duplex that has joint title with me and my partner out in Phoenix, AZ.  Our original numbers were as follows.

Original Numbers

-$309K Purchase Price at 4.875% 30 year fixed

-$278K Loan Amount

-$43K Initial Investment

-$15.7K Annual cash flow or 38% CoC (15.7K/43K)

My partner was able to lock in a killer interest rate a couple of weeks ago when the rates dipped and rolled in a few thousand into the loan amount here's where the numbers fall in that scenario.  He is going to refinance in his name only and free me up for another loan.

Refinance

-$309K Purchase Price at 3.375% 30 year fixed

-$281K Loan Amount

-$43K Initial Investment

-$18.5K Annual cash flow or 41% CoC (18.5K/43K)

Cash Out

-$309K Purchase Price at 3.375% 30 year fixed

-$311K Loan Amount

-$16K Initial Investment (Take out $26K of the initial $43K) 

-$16.9K Annual cash flow or 106% CoC (16.9K/15K)

Here's my dilemma! The appraisal for the property recently came back at $415K and my lender suggested that we could take up to 26K cash out for 75% LTV. We're currently at 68% LTV. The numbers would look insane with CoC at 106%. I've explained to my partner that we could both take out 13K each(half of 26K) and essentially have $16K total into the property versus the original $43K total. Not only would our CoC be insane, but it would give me access to some capital should I invest down the road in this market downturn or have some stashed away as extra reserves for vacancies or emergencies during the COVID-19 crisis. My partner does NOT want to do this and works in banking/lending so I'm trying to see his point of view.  Here are his main two reasons.

1.  Given the current scenario (he works in banking), he is bracing for the possibility of a reduced income up to 50% reduction(lack of bonuses or possible job transfer pay cut etc.  I'm sure everyone is bracing for this as its a real possibility).

2. Should he want to invest down the road and has to secure loans under his name only, he is fearful of adding on any more leverage. In this case his leverage in the property moves from $278K to $311K or an additional $33K. If his income is reduced significantly he wants to not add on any new debt so his DTI continues to look good.

After he explained his situation I understand where he's coming from but was curious if there is any other reason we shouldn't do the cash out refi? Even if I had to significantly reduce market rents, with higher CoC of 100+% we would be sitting pretty in the property. Also, an extra $30K of financing comes out to $2000 a year which I don't believe puts a dent really in any sort of Debt to Income calculations. I'm not old enough to have really felt the affects of the last crash but he was. Is there anything I'm missing here? Even if there was a fear of being underwater in this property and somehow the value plummeted from $415K to $300K we both agreed that we're in this for the long haul and don't intend/need to sell soon.  We could simply weather any downturns in value until the market gets hot again.  If we wait for the current environment to settle I feel like future appraisals won't be as high.

Thanks for reading this!