Am I Crazy to Give Up a 3.0% Fixed 30yr to Flip in San Diego?

[Account Closed]

Hello BP community!  I'm a newbie who is about to jump head-first into this real estate world, and had to pause for a moment to ask a very important question.  Am I crazy?

My primary residence in a San Diego suburb (Chula Vista) is up over 50% since we bought it 3 years ago (talk about luck). We got a great mortgage (3.0% fixed VA, 30yr, $0 down), and I am currently in the process of doing a 100% cash out refinance, in order to tap the equity, so I can start rehabbing / flipping properties in San Diego. One lender is quoting 3.8% for 100% cash out and the other is quoting 3.5% for 90% cash out. I realize these are still historically low rates, but they are well above where I am at now, and it is hard to give up such a great rate.

Am I crazy to give up a 3.0% interest rate, and add another $1,000 to my fixed monthly mortgage? I am confident that I can gain better returns using that money for flipping. I thought about just getting a HELOC, but I would only be able to pull out about half the cash (due to LTV limits), and the rate is variable, with the Fed seemingly set to raise rates over the coming month(s). Since my strategy is flipping in San Diego, I need the most cash I can get (it's a little expensive here), and if I can get better than a 4% return on that money, then I'm better off, right?

My goal is to flip 1-3 houses next year, and be able to replace my 9-5 in two to three years, and become financially independent within 5 years, and then continue flipping for fun!  BTW - If anybody knows anything about buying foreclosures in San Diego, I'd be grateful to know how to get started with that.

If anybody else has used a cash out refi to get started in flipping, I'd like to hear your success story.  If you would never give up that rate, please chime in also.  It's a big commitment, but I am confident that it will be the key to achieving my goals.

Thanks,

Tim

[Justin R.]

@Account Closed Not crazy at all. This game is ALL about leverage and arbitrage. Someone is loaning you money with very low risk (because the VA is guanteeing it) at 3.5%. You're going to apply your energy to the system and assume the higher risk necessary to drive a 20% return on that same capital. Your profit is the arbitrage.

Now, will you be successful at actually getting that return?  I surmise that maybe 20% of those who try are successful, so you'd better have reason to believe you have some advantage and are atypical.  I hope you are.