Optimizing Cash-Out Refi and New Purchases

[Hemanth Grandhige]

I have 5 rentals in the Atlanta and Tampa area.  In total they are worth around 1.2M and I have debt on them around 260K. I have talked to a Loan Broker about doing a cash-out refi.  We first talked about a portfolio loan but he felt I could get more cash out if we did them individually. I also felt the flexibility of doing them individually could be worth it in the long run.  

The first round of numbers looks like I'll get about 493K in my hands after paying off the existing debt and all the origination fees and closing costs.   (These loans aren't cheap and so I am going to shop it around some more but let's assume this is the best I find.)  

I'm using my latest acquisition, the Tampa property, as a model for my new investments.  I can buy  5 more properties with 30% down and still have a decent bit left over for repairs and expenses.  

After running this model, my monthly positive cash-flow actually decreases from 5300 / month to 4125 / month primarily because I've added the debt on the existing houses.  I don't live off this cashflow so that alone doesn't bother me.  I'm just wondering if there is a way to optimize the amount of cash I pull out of the existing and the amount I put down into each new property to get the maximum cash flow and build equity.  Is there some sort of formula or rule of thumb to follow in a transaction like this?

I'm taking my debt level from 260K to 800K just on the 5 properties and then using that cash to put myself another 960K in debt.  I don't want to take that lightly without  thinking through all the scenarios. 

I appreciate any thoughts if you have done this kind of thing before. 

[Salvador Auciello]

Hello Hemanth,

I noticed that blanket loans versus individual DSCR have their pros and cons.

For say in States where loans are small and lenders require a minimum loan amount then a blanket loan can make sense. It does save you money while pricing out a loan since there are less hits to the rate. 

In your case you are better off with individual DSCR loans.

The cool thing about the blanket loan is you can do it at the same time you are buying the properties. So say you have 5 properties and you got the LTV to be at 70% for your current properties plus say two more properties you can purchase with the equity of your portfolio.