Multi-Family Cash Out Refi Question

[Jesse Howell]

Hello everyone, 

I'm new to bigger pockets and this is my first post. I have a good relationship with a local credit union and a few weeks ago (prior to rates going way up) I started the process for a cash-out refi on my 2 multi-family properties. For a 5 year loan we did a rate sheet at 3.9%, pretty good as that was the same rate I currently had with extending my rate another 5 years and pulling out cash for another investment (flipping and or out of state BRRRR deals I'm thinking).

I got a call from my loan officer and he informed me we were going to be looking more like 4.5% with the way things are going (still pretty good, but not 3.9% unfortunately).  I also have an option of 4% for a 3 year term.

The 4.5% is going to cost me appx $300+ additional per month.  I like the idea of saving and cash flowing an additional $300 per month.  My concern is if I go with the 3 year rate rather than the 5, is if rates are not better than they are now and possibly even much higher after the term.  I know no one really knows, but I'm just not sure if rates will be likely less, similar or much higher in a few years.

I think the safer bet would be to take the 5 year option, pay a little more now and if/when rates get better just do another refi 2-5 years from now.

I will be lightly cash flowing either way...

I'm very curious to hear the thoughts of other multi-family property owners, finance experts and other real-estate professionals.

Thanks in advance!

Jesse

[Jeff G.]

I don't have a crystal ball, same as you. But let's abstract some lessons from history. The only other time in history prior to the present we've encountered stagflation was from 1973 until 1982. So, we may be in for as many as 9-10 years of economic pain. Not to get political, but this time could be shorter or longer depending upon future elections and their implications on national economic policy. I'll just leave it at that.

The safe bet is to be cynical. Assume you're going to have to refinance into a worse rate in 5 years and adjust your plan accordingly. Rents have already shot up so they may be flat for the next few years. Start looking into ways to reduce your costs first and then look at raising rents later, once rental rates have started to climb again.

Some tips:

* Review what your vendors are charging you and try to find lower cost vendors in your area that still meet your expectations for quality.
* If units aren't separately metered, you probably want to look into that.
* If you have laundry on site, you probably want to charge for it, ideally with a card reader so that you can adjust rates if needed.
* Since most land lords have their greatest expense during periods of turnover you might want to find creative ways to encourage tenants to renew their leases and stay longer.