Refinancing and Leaving Equity

[Justin Sheley]

I just finished a successful BRRRR and refinanced the property at 65% of the appraisal. I have done this on a chunk of my properties and some are financed even lower than 65%. My bank would allow me to refinance up to 75%, but my current business plan dictates that I pull out only what I have into the property and leave the rest as equity. In my opinion this helps my portfolio stay a little more recessions proof, especially since the majority of my mortgages are a 5yr ARM. The higher equity also helps my net worth. However, I wanted to see what other opinions on this would be. I struggle with equity just being a imaginary number on my spreadsheets when I have the opportunity to put more cash in my pocket if I refinance at 75%. I know that I could use that extra money to get into more deals, but if I make that the standard for my business then I will start to have a portfolio and company that is leveraged at 75% instead of 65%. And that seems to be a bit of a riskier model. I want to make sure my company is around for the long run, but also don't want to miss out on opportunities to grow. What do you guys think?

[Thomas S.]

I agree with above in regards to dead equity. It is costing you a fortune in lost income. Every 100K is cost you 10% or $833/month.

Additionally if there is a recession you lose it all, not a good financial plan. If you do not want to pull it out to reinvest in real state then pull it out and invest in some other vehicle that will not be effected by a real estate drop. If your real estate drops in value you are then only losing OPM. 

Do something to make it earn it's keep rather than having dead equity sitting waiting to be lost. 

Equity is always at risk in real state and costing you a fortune in lost opportunity.