Keep the cash or put towards equity

[Edgar Perez]

Hi BP it's been awhile, After a long 6 months I've finally closed on my first investment property a 4unit in Kenosha Wisconsin. As far as numbers I don't get a great deal and may have over payed a bit but it does meet the 2% rule and should cash flow fine. House was assessed about 105k purchase price 100k with 10% down loan at 90k. Now my plan is to cash out refinance as soon as I can and my question is should I apply some of my cash flow towards the monthly mortgage to build equity faster or should I bank the cash flow and keep making the minimum payments. Are there other strategies or advice for me to be able to refinance sooner rather than later?

[Nick G.]

Hey there @Edgar Perez, I'm guessing you're living in one of the units? Most 90% LTV loans are owner-occupied and have PMI, so one option is to dump the PMI as soon as you hit 20% equity. However, it also may not be worth the cost of a refinance in order to save that $60ish/month, that's up to you and your cash flow situation.

I probably would not reinvest the money back into the property - I know there are plenty of people who do it both ways, but my personal policy is to let my properties pay for other properties - not pay themselves off. That's the tenant's job. 

So if I didn't dump the PMI, I'd probably either:

1. Let the equity in the property sit and grow, with which (after I'd moved out for a period of time) I'd 1031 to a higher-performance property at a future point in time, or 

2. Stay living in the property and take advantage of a nice owner-occupied cash out refi, there are 80/10/10 loan and other products out there that will let you take out up to 90% of the property's value - then take that money and buy more property with it.

Hope that helps!