Cash out refi to buy rental property?

[Taylor White]

I’m looking at a property in my neighborhood that is turnkey and just dropped down to $115k. I don’t have cash for a 20% down payment, but I was considering doing a cash out refi on my first home (which is already a rental property.) I don’t know much about cash-out refi’s, so let me explain what I think I want to to do, and you all can tell me how misguided I am! Haha

I owe $80k out of the original purchase price of $92k on my first house, but I think I could easily refi for $110k-$120k. The result would hopefully give me enough cash in hand to put 20% on the new property and cover closing costs. Would this be a good way to acquire my 2nd rental?

I appreciate any feedback!

[Fred Cannon]

I am not a banker or mortgage lender but from my experience of looking at this same scenario i would say the numbers probably won’t work for you.  When you refinance the best you could do would be to refinance at 80% of the current value  Most of the mortgage brokers I have been talking to require 30% down on an investment property and also @ 6-7% interest.  A better scenario would be a heloc if your bank would do one since the property you are borrowing against is a rental.   Not sure if you are old enough to remember the housing bubble bursting about 12 years ago but a lot of millionaire investers moved into the poor house   My advise to you is to tread water until you save enough to purchase a second rental and not put your other house at risk