To cash out refinance or not

[Jacob Higginbottom]

I have a rented investment single fam condo that has about 60% equity and cash flows about $220/mo. It's in an ARM at year 15 at 5.125% and rising. I'm considering a cash out refi to bring it to about 40% equity or 60% LTV and extend the mortgage to another 30 years at 4.75% fixed and take the cash to use for my first BRRR. Anyone have thoughts on this? Much appreciated.

Beginning BRRR is boston

[Eric Rosiello]

@Jacob Higginbottom

I would agree with @Dan K.. If you're going to cash out refinance, you should take out the maximum you can - which is likely refinancing at 75% LTV. Some lenders may do 80%, but most will only do up to 75%.

Refinancing costs are generally fixed, so if you want to refinance again down the line you will have to pay those costs again ($4k to $8k).

Your mortgage lender will give you the same interest rate whether you're refinancing at 60% LTV or 75%. I also think you can do better than the 4.75% you mentioned above.

Your money is not doing anything for you tied up as equity in your property. You want to free up as much cash as you can and reinvest at a higher return than you pay in interest, which should be no problem when investing in RE. 

Generally, 3 family properties perform better than 2 family, so having more cash available to afford a 3 (or 4) family will give you a better return on your BRRRR.

Eric