Is It Time to Refinance or Wait?

Question

I have a couple of duplexes and a four unit that I've had for 3 or 4 years now and I'm looking at doing cash out refinances on them. I've spoken with conventional lenders and portfolio lenders to get some good options. I can pull out significant equity while still cashflowing them.

I was gung ho on refinancing them immediately b/c I can see interest rates going higher very soon but I just listened to David Greene on a BP podcast that made me reconsider. He suggested that if I don't have anything to purchase right now, it might be better to wait. I don't have anything to purchase at the moment so maybe it's better to wait until I do.

However, I want to have enough cash available if something does come up and I want to make sure I lock in a low interest rate for the next 30 years while I still can.

What are your thoughts? I'm in the Charleston, SC market if that makes a difference.

David Krulac · Answer

@Andrew Merritt If you are starting out or are in acquisition phase, then I have always said, "Finance as much as you can for as long as you can." The first 11 properties that I bought were 100% financed in one way or another. I talked about my first purchase on Bigger Pockets Podcast #82.In today's market of historic LOW interest rates, that we may never see again, this IS the time to refinance and borrow as much locking in those low interest rates for fixed terms. Somebody I know somebody who got a 2.25% fixed mortgage for 30 years, another got 2.5% fixed for 15 years. Those are the type of mortgages that should not be refinanced. The first mortgage I got was 9% fixed for 30 years and the highest mortgage I got was 15% fixed for 30 years. Both were refinanced three times for lower rates and cash out.David KrulacBigger Pockets Podcast #82

Nick Belsky · Answer

@Andrew MerrittMany investors are finding 40 year Hybrid options very appealing right now as well. Many are buying down the rate to floor pricing and getting the buy down paid back in less than a year with the I/O payment savings. Another avenue to think about.Cheers!

Joe Splitrock · Answer

I purchased my first home in 1999. At the time, interest rates fell below 8% and everyone was excited. In the coming years, I refinanced multiple times. Every time I was told, "this is the lowest interest rates in 30 years or 40 years, you will never see this again". After 20 years of falling rates, I am a little skeptical when people claim we may not see these rates again. I think low interest rates are the new norm. We will see some ups and downs, but this is hardly your last chance to get a good rate.That being said, if the numbers make sense, do a refinance. I have done three refinances in the last year. I was able to reduce payment and pull cash out. I freed up extra cash flow and purchased another house with no money out of pocket.

Andrew Merritt · Answer

Thanks for the advice everyone. That is what I wanted to hear, just wanted some confirmation from the community.As a bonus, now I'll be able to show my wife that this little hobby of mine is actually making significant money too!

Tanner Cohen · Answer

Hey @Andrew Merritt, I would agree with @David Krulac. If you can lock in a lower or equal rate to what you have currently on your properties then it would be advantageous to do so now while rates are where they are. Keep in mind that the fed has already begun to increase rates and are continuing to do so, so you aren't going to lock something in at the historical lows like others did during peak covid but you can still get a great rate. Since you want the cash on hand to make another purchase for your portfolio, again I recommend you move on that c/o refi so you can simultaneously ramp up your hunt for properties to put some of that cash towards. The window for your refi and new purchases at current rates is closing. Best to capitalize on that now especially since you think you have enough equity built in the past 3-4 years to tap into the make this happen at little to no out of pocket cost. Good Luck and Happy hunting!

Marcus Auerbach · Answer

David Green normally makes sense - waiting for lower rates in early 2022 doesn't! Rates have gone up half a percent the last weeks and the Fed has not even started tapering back yet. Inflation forces them to do something.The fact that you can borrow money for half of the inflation rate is upside down!!

Andrew Merritt · Answer

Thanks @Todor Ialamov, that's pretty much my feeling as well.

Todor Ialamov · Answer

@Andrew MerrittI personally am cash out refinancing the smaller properties I have. I did listen to David Green’s opinion on this. I generally like his takes more than anybody else’s on BP, but disagree with this one. It is a very tight market and extremely low inventory, but I think there are still descent deals. Even if you overpay today, but lock it on a low interest rate, what might not look very good today, will be great a couple of years from now.We are not day traders, but in this for the long term!

Troy Gandee · Answer

@Andrew Merritt I would do it sooner than later. Rates for 2nd home and investment are already climbing. You can always stick it in a money market or high yield savings account temporarily until you find something. When you do stumble across a deal, you'll regret not having the capital readily available.

Andrew Merritt · Answer

@Joe Splitrock (cool name by the way), that's a good point. I've only been investing since 2017 so my experience w/ cycles is limited/nonexistent. I try to keep that in mind but I also don't see how rates could get much lower than they are now. I suppose if the Fed started doing negative interest rates they could, but I don't think that sounds too likely.