Cash Out Refi Economics Question

[Kyle R.]

Hi BP

I know BP is real big on the cash our refinance method and the BRRR method.

I have a question when trying to fight out the actual net positive of it, maybe will these numbers it doesn’t make sense hence.

Example: I have a 200k property that I had put 20% down (40k investment) that is netting me 10k in cash flow per year

Say the property values in the area have increased so the property is now worth 270k. If I cash out refi at 75% LTV I would receive back around 45k-50k.

But now since my mortgage costs went up, I might only net 5k in cash flow per year from the original property.

With the cash out money I can go and buy property #2 but since the area’s property values have gone up (hence the original refi), I might only net in cash flow around 5k from the second property also.

In this case, Property 1 (with a higher mortgage) + Property 2 = cash flow if I never refinanced Property 1. It seems like In this example there is no net-net benefit?

Does anyone have an example of this strategy working? Does it depend all on the buy?