CASH-OUT REFI ON RENTAL PROPERTY WITH NO MORTGAGE

[Syreeta McDonald]

Hello. I own one rental property with no mortgage. A tenant is moving in next month. I would like to take money out of the property to put a downpayment on two other properties. Would a CASH-OUT REFI be a good option? What do lenders look for in order for me to qualify for the CASH OUT REFI? Would I then be able to get a DSCR mortgage to finance the other two new properties (one would be a long term rental and the other possibly a midterm rental)?

Thank you.

[Andrew Postell]

@Syreeta McDonald I think you have some good comments above but there are some other strategies out there that would speak to holding a property for 5 years and then buying multiple properties.  No matter what, when you do a cash out loan you are required to keep a portion of the money in the property.  You can't cash out 100%.  But selling would allow you to get ALL of the money out...and then you can leverage that for many properties.  Every 5 years you sell a property for multiple properties.  

So if we do sell this property, let's assume you would take home around $240,000.  If you needed to put 25% down on your next properties at $200,000 each, that would allow you to buy 4 properties.  Then in another 5 years, you sell those 4 properties for 8 properties.  Then in 5 more years, you sell 8 for 16....and so forth.  And there's nothing that says you can't pickup another property or two along the way. If you can imagine this you can see how powerful it can become if you stay with it.

I hope that this makes sense how I am describing it.  Brandon Turner did a pretty good job of highlighting this strategy a little here: https://www.biggerpockets.com/...

Let me know what you think.