Would you refinance for 33K cash?

[Tandi H.]

We are looking at refi'ing a property while rates are low again, mainly to get some cash for creating more units on an existing property and/or new purchases. We've bought one property a year for the past three years, and currently have a SFH and two duplexes.

Property details: SFH, appraised at 230k and refi'd last year, did not pull max equity out (novice move, we know). Currently has a 133.9k mortgage at 3.75%. Mortage at about $660/mo plus about $200/mo escrow for $860 total.

New refi would be at 4.375%, 70% LTV (max this company offers). Based on last year's appraisal of 230k that would mean pulling out 172.5k - 133.9k = $38,600 - $5000 closing costs = about $33k cash.

Total monthly payments would go up $200, from $860 to 1070.  Rent is 1300.

The cash would be used to add another unit to a duplex or to purchase another property.

Is this worth it?  Any thoughts?  Thanks.

[Shaun Weekes]

Originally posted by @Tandi H.:

@Tom S. I didn't consider a HELOC, but that's something I will look into. I'm generally of the camp that prefers to keep as little equity as possible in properties, to have access to it. That's why I was looking at another refi.

@Shaun Weekes We would use it to either:

1.  Add another unit to one of the duplexes - my husband does all our work, so that project is dependent on him having enough time off his day job.  Which means it can take awhile to get done.  The unit would be the conversion of a 2-car garage into a one bedroom unit that would rent for about 800/mo.

2.  Purchase another rental property - it could be the down payment, we are doing a trip to visit a family member who is interested in partnering on rentals in their area.  It would be good for us to not be only based in our current hometown.

Hope that clarifies the use of the refi cash.  Either way in the long run we would be getting more cash flow, though less from the refi'd property.  

Since the money is being used for a long term rental I would just do a cash out refinacne. Rates will be lower than a HELOC and over time it will be more cost effective. If this were a fix and flip or BRRRR less than 6 to 12 months a HELOC would be your best option. Just my 2 cents.

Take care and have a great day.