Cash back refinance on paid home for investment property?

Question

Dear all,

Wanted your input on cash back refinance. My primary house is paid off, value ~300K in current market, maybe more. I have a 2nd property that I am leasing out, which is making positive cash flow ~$500/month.

I am interested in getting a third property in the same area given its location to a large post-grad institution with good tenants. I strictly look for 3 bed/2 bath SFHs. I do not have the cash upfront to place a 20% downpayment on a property at this time. However, I was told that a cash back refinance on my primary home would be a good option to get equity out of my paid-off home.

Is this a good idea? Or would it be better to just save up money for the next downpayment? The other option would be to get a cash-back refinance on my 2nd property that has about 48% equity (house valued at about 375K). I earned equity on this 2nd property quickly with the recent rapid appreciation in real estate market. My goal is to build a portfolio in the next 10 years or so, and pay off the properties as quickly as possible.

Thank you all,

John

Kerry Baird · Answer

I have recently completed a cash out refinance, and think now is a great time to access the equity in my properties. Like anything, money has a cycle. It tends to be easier to get at some points in time, and then more difficult to get. The rates are coming back down a bit this month.

We did what you are planning on doing: we were intense about saving our tax returns, and bonuses from work, small inheritance, and so forth.  We used that money and bought one at a time, a number of single family houses.  Then we used the debt snowball to pay them off.  And then we found we wanted to buy more houses, so we refinanced all of the houses, pulling cash out.  The houses still cash flowed, at a reduced rate, but we had a lump sum of money to use.  Then we bought a few more...

Jay Hurst · Answer

We do it all the time!  Fannie has always allowed it.  https://singlefamily.fanniemae...

Jack Mawer · Answer

John, I would recommend pursuing a cash-out refinance on your investment property, or a HELOC on your primary. Let me know if you want to look at some numbers for the refinance, happy to help

Jay Hurst · Answer

The process is more or less the same as any other loan you have gotten, likely taking anywhere from 15 to 30.  There would be a full market value appraisal done on the property again just like any other loan. I would love to send you some numbers on rate etc.  The rate is not a  one size fits all so depends on credit, if you want to max the cash etc.

John Geer · Answer

Thank you all for the responses I greatly appreciate it. I am thinking of leaving my paid off primary residence alone, and taking out equity of my investment property, which has gained significant equity.

What exactly is the process for getting a cash-back refinance? Does it take awhile? How do they value the current market value of the property? What are the typical interest rates you have gotten?

Thanks so much. Interested from hearing back from you all.

Brandon Beardt · Answer

Hi John, sounds like you have quite a few different avenues you can pursue in your situation. I would only pursue a cash-out refi on your paid off primary if you're looking for a larger sum of money to take out to use for the down payment of the new property. You'd get a whole new mortgage and would have to pay interest on the entire amount. If you're looking to potentially take out a smaller amount, a HELOC on your primary may work out better. You may not be able to tap into as much equity as a full cash out refi, but that way you have access to a good deal of funds and only pay interest on the amount you actually use. It really just depends on how much cash you'd need for the down payment of the new property. Taking cash out of your current investment property is also a good strategy - I would just make sure that your property continues to cash flow afterwards given the new loan amount and rate. The good news is, you have a few different options to consider! It's just breaking each option down and figuring out which one you are most comfortable with and makes most sense for you. Don't feel pressured to take out more equity/cash than you really need. Best of luck!

Jaron Walling · Answer

@Jay Hurst Which lender is doing 15% down on an investment property loan? My lender only does 25%. I know some do less if it's commercial, LLC owned.

Jay Hurst · Answer

You will get a better rate on your primary home then you will on your investment property, as well as able to go up to 80% loan to value on your primary compared to 75% on the non-owner occupied property  but of course some folks like to keep their primary out of your investment.  You would also want to consider the rate on your current investment property. if you can get close or lower then your current financing that might help decide.

As for the down payment on the new house you can put down as little as 15% on a single family non-owner occupied property, not the above mentioned 20%.

Jason Wray · Answer

John,

Home values are at all time high's right now with that being said its a great time to use the equity through a cash out refinance.  There are a lot of new programs for investors that require less down payments.  Would be a good time to look into the multi-family homes since you have a large amount of equity avaialble.  More doors more cash flow!

Cash back refinance on paid home for investment property?

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