Is cash out refinance to buy another house a good idea?

[Jason Nguyen]

Hello, I bought a property back in 2016 and it has increase in value of around 3% - 4% each year. Is it worth to cash out the equity now to put down payment on another rental property?

[Andrew Gingerich]

Is the cashout going to be done on your primary residence or a rental property? And second, do you have two years of experience with rental properties that can be proved with bank statements or tax returns? 

The reason I ask the above is you can do a 20% down on the cashout refi and free up more money if its your primary residence or if you have two years experience as an investor. 

For example, 80% of 470K is 376K, Minus your debt outstanding of 220K. Funds available for cashout would be 156K. But keep in mind your mortgage might be much higher with 376K of debt? So as long as you can afford the new payment, as you have already noted, you have a good chunk to put down on two new properties. 

You're right refi will require closing costs (the 6K you noted), so will the new investment property loans. Find a good broker and I think you can budget for $3,500 in closing costs for each loan, maybe less. 10K budget for all three loans is very doable in most markets I think. 

Closing thought make sure you track not only the interest on the new investment loans since this is deductible but also the new interest expense on the refi'ed home since this increase in interest rate is also tax deductible. I'm working on this exact tax situation in 2019 taxes.

If I were you I'd be moving forward!

Nice work.

Andrew