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Updated about 4 years ago on . Most recent reply

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3
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Davin S.
  • Investor
  • Rochester, NY
0
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3
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Cash-Out Refinance or No?

Davin S.
  • Investor
  • Rochester, NY
Posted

Background: My wife and I own a 4 unit property. We live in one of the units and rent out the other 3. We purchased the property just a little over 8 years ago at $189k with 25% down at a 3.75% mortgage rate for 30 years. At the time, it was assessed by the city at $200k, and rents were very low ($2,830/mo for all 4) because most of the units were dated. The property was reassessed by the city at $250k last year, and recently by the bank at $315k (market value). With all the units rehabbed, the combined rent for 3 apartments is $3,100/mo. Plus there's the apartment we live in rent-free, which would earn an estimated $1,400-$1,600/mo were we to rent it out.

The Question: With rates as low as they are, we would like to refinance the property for the first time. Should we:
1. Refinance the remaining balance (~$114k) at 2.625% over 20 years? (By my calculations, saving us ~$9k) OR...
2. Refinance with cash out ($250k loan, 3.25%, 30 years) - so that we have the cash available to put down on a second property should we want it? This would cost us roughly $150 more a month, but this expense and the new mortgage would ideally be covered by the second property.

The local market is HOT, so we might be hard-pressed to find a property that is profitable in the next couple of months. Do we go with #1 and then HELOC when the market cools down / if we find a property that works for us? Or go with #2 to have the cash ready, but risk not putting it toward a property for some time yet? I'm thinking #1 is the way to go (higher interest rate, but borrowing less and only when/if we need it) but figured it couldn't hurt to ask.

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