Cash out refinance case

[Demjan Van Der Kach]

Hello fellow investors!

I have a question for those who experienced the following scenario (I apologize for the oversimplification and numbers clutter):

I bought SFH rental for 300K with conventional 20 year fixed 3.75% a few years ago with 60K down payment. Now the property is worth 475K. The mortgage balance is roughly 190K. I would like to cash out refinance and take out 150K cash to put into the new deals. I am offered the new mortgage at 75%LTV (356K) at 4% fixed 30 years. Here are two questions:

- If I invest 150K cash I pooled out from my above-mentioned rental and use it for two more rentals with the down payment, say, 75K each and assume I get the mortgage 80%LTV fixed 4% 30 years can I still fully deduct the mortgage interest from all the rentals?

- can my depreciation to be increased in the cashed out rental (my initial depreciation was calculated 240K/27.5) to 356K/27.5 per annum based on higher appraisal?

Thank you

[Michael Plaks]

@Demjan Van Der Kach

1. Yes you can deduct all interest in your scenario. The portion corresponding to the $190k against the old rental, and the portion corresponding to the $150k against the new rental(s). Need to be careful separating this cash-out money, not mixing it with other money, and not using it for anything else.

2. Your depreciation does not change from refi. It is calculated based on what you paid for the property and not on its current value. Also, not sure why you started your depreciation at $240k. If it was because $60k of the $300k was allocated to land - then it's correct. If you based it on the mortgage principal of $240k - then it was wrong.

PS. Make sure your lender will allow you to use the borrowed money for your down payment.