Refinance to 30 year mortgage to increase cash flow?

Question

My husband and I have 5 SF rentals. One paid off and 4 others with substantial equity. We are debating on cash out refinancing one property and taking the proceeds to purchase other rentals and potentially completely pay off one of the other properties. Our question would be is it wise to use those funds to pay off another property to increase cash flow and have two paid in full properties. Any input appreciated.

Thanks
Leigh Ann

Thanks Leigh Ann

Heather Wilkerson · Answer

Leigh Ann -- have you setup a long-term investing plan? My husband and I are doing the Wealthability plan through Tom Wheelwright and loving it. It helps you think through how to allocate your assets to achieve your goals the fastest. Tom Wheelwright is a Rich Dad Advisor.

That said, with interest rates as low as they are, if you are able to get fixed rate mortgages and take cash out, I would suggest that. Rates really can't get much lower.

Jerry Padilla · Answer

@Leigh Ann Lozano

Great thoughts! With conventional - which is where you will see your lowest rates, you are limited to 10 financed properties and then will have to switch over to portfolio lending. Maximizing your cash out will allow you to purchase more properties and hopefully overall increase your monthly cash flow with all of your properties. Depending on your interest rates, it may even drop your rate, as rates are great right now. With conventional financing you can go up to an LTV of 75% on a SFR and up to 70% on a MFR.

Leigh Ann Lozano · Answer

Thanks to everyone for your input.  My thought is that 2 free and clear properties and lengthening mortgage to increase monthly cash flow will open more opportunity to purchase more properties.   I also think that picture would look more favorable to a lender.  And we could still work to pay down mortgages faster than the length of time financed but we would have extra cash to use when opportunities arise.

Hai Loc · Answer

Great idea. I am a huge fan of Balancing your debt and equity that way. Why have lots of equity in 5 properties when you can have 2 properties free and clear and high LTV/debt on 3.. Just make sure the 2 free and clear properties do not have the same entity as the 3 leveraged. So if sht hits the fan then you can lose the 3 leveraged and nobody can touch the 2 free and clear..

Erin Schlachter · Answer

Rates are low and still dropping.  Depending on balances it may be good to cash out now and could pay off smaller loan and still have less monthly payments with cash in your hockey afterwards.

Leigh Ann Lozano · Answer

Michael,

Thanks for the feedback.  We are just trying to figure the best/smartest way to utilize our equity.

Michael Garofalo · Answer

Hi Leigh Ann,

Instead of doing a cash out refinance, have you considered taking a HELOC (home equity line of credit) against them instead? I like HELOC's more because you only pay interest when you need to use the funds. So you can shop for a deal and then tap the HELOC when the right opportunity comes along. If you do a cash out refinance, you will have money sitting around that may not be able to be deployed for a while. This of course assumes the housing market does not drop, if it did the bank reserves the right to freeze the line (making your access to capital come to a hault).

I don't think I would do a cash out refinance just to pay off the mortgage of another property. The cost and headaches of doing so wouldn't be worth it to me, but that's just my opinion. If you want increased cash flow, work to aggressively pay down the existing mortgage on the other property rather than shift equity from one house to the next.

Refinance to 30 year mortgage to increase cash flow?

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