Surprised Cash-Out Refinance is so expensive

[Doug Schorr]

I purchased a positive cash flowing property last summer, for cash and am now (finally) looking to do a cash-out refi to pull the cash to use on another property. My other properties were all purchased with traditional bank mortgages so I get that side of the equation. On this one, I bought at let's say $51000 and its now worth approx. $62000. Not a huge appreciation, but it's something and considering this is Midwest, it fits. The refi rates I've gotten estimates for so far are 5.25% (traditional bank) or 5.62% (investor focused broker) plus around $3200-3700 in closing costs. Seems excessive to me. I know this wasn't a true BRRRR since I purchased with a renter in place and the place has only had a few "rehab" fixes completed (exterior trim work and painting, bathroom leak floor replacement).

I'm looking to start scaling up and acquiring faster (better!) but in this case the cost to pull $42k out seems a little higher than I expected. What am I looking at wrong or missing here?

[Chris Mason]

• Keep in mind you typically defer 1-2 payments when you refinance. You can pay the balance right back down using that temporary increased monthly cashflow, if you elected to roll closing costs into the new loan.
• If you had and are going to continue to have an impound account for taxes and insurance, your old impound account balance will be refunded to you, after most folks roll the cost of the new escrow account into their loan balance. Apply that towards paying the balance down too.

Do both of those things, and >90% of refinances will not leave you unnecessarily more in debt (in this case it's a cash out refinance, so it can't be avoided).

Do most Americans do those above two suggested things, or do most Americans take that money and go buy shiny new objects with it? That's a different question entirely....