Should I cash out refi to buy my next property?

[Alexis Sicherman]

Hi all! My name is Alexis and this is my first post on the BP forum. I own a vacation rental in Cape Coral and have since 2016, so it has quite a bit of equity in it. 

Some numbers on it;

Bought for $175k in 2016, have $109k left on the loan. It’s now worth $375k (haven’t had it appraised yet but this is the low end of my estimate). Current interest rate 4.125%.

I want to buy a second home in/near Bradenton or surrounding areas north of Bradenton. I plan to use it as a primary and house hack it for a couple years until moving out of state, renting it, and then buying another property. My husband and I are travel nurses, so we plan to bounce around every year or so. The price ranges down here are $375k+, otherwise you’re in a C/D class property, and we are just not willing to live in a bad area like that for 2 years. 

The question, should I cash out refinance the Cape Coral home in order to fund a down payment on the potential second home in Bradenton?
I don’t want a mortgage payment to be nearly $3k a month on the new property, which is what it would be if I put less than 20% down. 

But my concern is, if I cash out refinance the Cape Coral home, would it raise that monthly mortgage significantly? Therefore canceling out my goal of keeping both mortgages lower?

Thanks in advance for the advice. I’m also asking my lender these questions, but wanted other opinions :)

[Raymond J. Rodrigues]

Hi @Alexis Sicherman, cashing out on your property in SW FL will most likely result in an interest rate somewhere in the 6-7’s depending on your credit score and loan to value. So to answer your question, yes it will increase your payment quite a bit. Does it make sense to have less cash flow on your investment property, to have a fairly lower monthly payment on your new primary residence? You have to measure what you’re trading off. There’s talks of inflation reporting to be even less in the very near future which will result in lower interest rates/opportunities to refinance. Feel free to reach out with any questions. Always happy to help crunch numbers. 

[Raymond J. Rodrigues]

If you’re looking for an excellent realtor in the area, reach out to @Josh Green.

[Josh Green]

Quote from @Alexis Sicherman:

Hi all! My name is Alexis and this is my first post on the BP forum. I own a vacation rental in Cape Coral and have since 2016, so it has quite a bit of equity in it. 

Some numbers on it;

Bought for $175k in 2016, have $109k left on the loan. It’s now worth $375k (haven’t had it appraised yet but this is the low end of my estimate). Current interest rate 4.125%.

I want to buy a second home in/near Bradenton or surrounding areas north of Bradenton. I plan to use it as a primary and house hack it for a couple years until moving out of state, renting it, and then buying another property. My husband and I are travel nurses, so we plan to bounce around every year or so. The price ranges down here are $375k+, otherwise you’re in a C/D class property, and we are just not willing to live in a bad area like that for 2 years. 

The question, should I cash out refinance the Cape Coral home in order to fund a down payment on the potential second home in Bradenton?
I don’t want a mortgage payment to be nearly $3k a month on the new property, which is what it would be if I put less than 20% down. 

But my concern is, if I cash out refinance the Cape Coral home, would it raise that monthly mortgage significantly? Therefore canceling out my goal of keeping both mortgages lower?

Thanks in advance for the advice. I’m also asking my lender these questions, but wanted other opinions :)

I think this all depends on your savings rate. Personally, if it's quick, I would recommend keeping the current STR on the loan it has instead of refinancing it to pull cash quickly.

Run the math but I think it would be much better to do 10-15% down (or 20% if you can save up quick enough) on the new primary.  One of the big advantages to a house-hack is the loan and ability to do lower down.

Buy something that needs some cosmetic updating, and you likely hit that 20% equity mark before you moved out.  Especially if rates dip here in the next 6-18 months, home prices will more than likely go up in response.  That would be an excellent timing to have already bought a primary, put in a little sweat equity, and then capture the equity gain/rate dip with a rate and term refinance to be effectively at the 80% Ltv mark.

@Raymond J. Rodrigues above Is a great lender that I'd recommend you reach out to and go over your current numbers.  I think you'll quickly come to the same conclusion. 

[Josh Green]

Quote from @Alexis Sicherman:

Hi all! My name is Alexis and this is my first post on the BP forum. I own a vacation rental in Cape Coral and have since 2016, so it has quite a bit of equity in it. 

Some numbers on it;

Bought for $175k in 2016, have $109k left on the loan. It’s now worth $375k (haven’t had it appraised yet but this is the low end of my estimate). Current interest rate 4.125%.

I want to buy a second home in/near Bradenton or surrounding areas north of Bradenton. I plan to use it as a primary and house hack it for a couple years until moving out of state, renting it, and then buying another property. My husband and I are travel nurses, so we plan to bounce around every year or so. The price ranges down here are $375k+, otherwise you’re in a C/D class property, and we are just not willing to live in a bad area like that for 2 years. 

The question, should I cash out refinance the Cape Coral home in order to fund a down payment on the potential second home in Bradenton?
I don’t want a mortgage payment to be nearly $3k a month on the new property, which is what it would be if I put less than 20% down. 

But my concern is, if I cash out refinance the Cape Coral home, would it raise that monthly mortgage significantly? Therefore canceling out my goal of keeping both mortgages lower?

Thanks in advance for the advice. I’m also asking my lender these questions, but wanted other opinions :)

I think this all depends on your savings rate. Personally, if it's quick, I would recommend keeping the current STR on the loan it has instead of refinancing it to pull cash quickly.

Run the math but I think it would be much better to do 10-15% down (or 20% if you can save up quick enough) on the new primary.  One of the big advantages to a house-hack is the loan and ability to do lower down.

Buy something that needs some cosmetic updating, and you likely hit that 20% equity mark before you moved out.  Especially if rates dip here in the next 6-18 months, home prices will more than likely go up in response.  That would be an excellent timing to have already bought a primary, put in a little sweat equity, and then capture the equity gain/rate dip with a rate and term refinance to be effectively at the 80% Ltv mark.

@Raymond J. Rodrigues above Is a great lender that I'd recommend you reach out to and go over your current numbers.  I think you'll quickly come to the same conclusion. 

[Alexis Sicherman]

Hi Raymond,
that is exactly my concern, I would love to run some numbers because I’m the type of person that needs to actually see it on paper to understand. I’ll shoot you an email if you don’t mind.

I was also considering doing a rate buy down on the second property. Do you have any opinions on that?

[Raymond J. Rodrigues]

@Alexis Sicherman  feel free to send me an email or message me. Buying down the rate doesn't make sense in a lot of cases if you are the one that is paying for it, especially where you may have an opportunity to refinance to a lower rate in the near future. It really depends on what your long-term goals are. 

[Stetson Miller]

@Alexis Sicherman Depending on how soon you need to act, a HELOC could be a temporary option which could allow you to get the best of both worlds. With the HELOC funds out of your Cape Coral home, you could purchase the Bradenton home much sooner, but because this would only be a temporary loan, you could refinance the Cape Coral home when interest rates come down, which would leave you with the long term loan in place at a much more favorable interest rate that we're seeing now

[Carlos Ptriawan]

Quote from @Alexis Sicherman:

Hi all! My name is Alexis and this is my first post on the BP forum. I own a vacation rental in Cape Coral and have since 2016, so it has quite a bit of equity in it. 

Some numbers on it;

Bought for $175k in 2016, have $109k left on the loan. It’s now worth $375k (haven’t had it appraised yet but this is the low end of my estimate). Current interest rate 4.125%.

I want to buy a second home in/near Bradenton or surrounding areas north of Bradenton. I plan to use it as a primary and house hack it for a couple years until moving out of state, renting it, and then buying another property. My husband and I are travel nurses, so we plan to bounce around every year or so. The price ranges down here are $375k+, otherwise you’re in a C/D class property, and we are just not willing to live in a bad area like that for 2 years. 

The question, should I cash out refinance the Cape Coral home in order to fund a down payment on the potential second home in Bradenton?
I don’t want a mortgage payment to be nearly $3k a month on the new property, which is what it would be if I put less than 20% down. 

But my concern is, if I cash out refinance the Cape Coral home, would it raise that monthly mortgage significantly? Therefore canceling out my goal of keeping both mortgages lower?

Thanks in advance for the advice. I’m also asking my lender these questions, but wanted other opinions :)

 Don’t be too afraid with interest rate as future interest rate would settle around 3-4% in few years.

If you plan to keep moving every two years , having primary OO loab is the best route so if you sell , you don't get taxed until certain level.

interest rate should not be a problem to invest in my opinion but tax rules needs to be strategized much in advanced.

[Alecia Loveless]

@Alexis Sicherman If you're not totally set on a SFH a quick way to build equity is through a 2-4 unit multi that you're house hacking. The rents will be counted towards your debt to income ratio when you apply for the loan and if you can value add the building by making some improvements while you live there you can quickly force a lot of equity for when you move and build your portfolio fast by moving every two years.

If your lender will allow it you also might be able to utilize a HELOC on your current home to utilize some of your equity without losing your great interest rate. Just be sure to apply for the HELOC while it's still your primary and don't mention you'll be renting soon and you should be fine. You can also typically pay off HELOCs quickly as long as you make sure there's no prepayment penalty and be sure to make principle only payments on top of your monthly required payments.

[Adam Bartomeo]

There are 4 main benefits to being properties - cash flow, appreciation, equity, and taxes. Cash flow and equity are similar... lets say that every month the property cash flows $100 which goes in your pocket while at the same time $100 goes into principle paid through the mortgage but is actually paid by the tenant. you are really cash flowing $200/ month, $100 in your pocket and $100 in your piggy bank.

Appreciation is when the property goes up in value - bought $175k and increased to $375k = $200k in appreciation. Now, lets say as the property was increasing in value you refied twice, each for $50k and you used this cash as down payments for 2 other properties. House 1 went up by $200k but you took out $100k, House 2 went up by $150k, House 3 went up by $100k. That would leave you with $350k vs your $200k. The B&H method is based on this - buy as many as you can and hold them.

[Alexis Sicherman]

Quote from @Adam Bartomeo:

There are 4 main benefits to being properties - cash flow, appreciation, equity, and taxes. Cash flow and equity are similar... lets say that every month the property cash flows $100 which goes in your pocket while at the same time $100 goes into principle paid through the mortgage but is actually paid by the tenant. you are really cash flowing $200/ month, $100 in your pocket and $100 in your piggy bank.

Appreciation is when the property goes up in value - bought $175k and increased to $375k = $200k in appreciation. Now, let’s say as the property was increasing in value you refied twice, each for $50k and you used this cash as down payments for 2 other properties. House 1 went up by $200k but you took out $100k, House 2 went up by $150k, House 3 went up by $100k. That would leave you with $350k vs your $200k. The B&H method is based on this - buy as many as you can and hold them.

This really helped me put it into perspective! Thank you