BRRRR or keep existing loan? Advice needed.

BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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BRRRR or keep existing loan? Advice needed.

Ryan Randall
NH · Member since 2016 · 56 posts · 73 votes

I purchased a 3 unit back in September of 2020. After some forced appreciation (making a legal a 4th unit) and some general market appreciation, I now have a decent amount of equity sitting in the property and would like to know what I should do with it. The main thing giving me hesitation is the insanely low interest rate that I received on it.

Here's some numbers to help:
Current mortgage ~550k w/ FHA @ 2.25% interest (3.5% down)
Current market rents for all 4 units (we live in one) 8.5k/month
Current market value ~900k
Current PITI(+PMI): 4050/month


If I do a cash-out refi, I can keep 20% of our equity and pull out 80%. This would leave me with roughly 170k after paying off the existing mortgage. However, with our current rates we'd be looking at ~5.25% and our monthly PITI payments would increase by roughly 1.3k to 5300/month.

My question is, would you recommend keeping our low interest rate (plus PMI), or would you recommend doing a cash out refinance and pulling out some significant equity? Another benefit of pulling out that equity I see is the potential for re-using the FHA for another property. Any thoughts/feedback would be appreciated!

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  • Nick Riccio
    Lender · Boston, MA · Member since 2018 · 171 posts · 137 votes
    4y

    @Ryan Randall tough dilemma that a lot of people are finding themselves in, myself included. I'd say you're very likely to see a higher rate than that on a 4 family cash-out refinance. 

    1. Do you need to use FHA again? If so, then I think you would obviously lean more towards the refi if that's going to get you another cash flowing property.

    2. If you don't need to use FHA again, I'd consider leaving the loan as-is, and leveraging a HELOC. This will keep your current mortgage intact.

    3. All of this depends on your numbers. Can you live with the reduced cash flow that the cash out refinance will bring? If the answers yes, then it's definitely worth considering.

    Hope this helps - you're definitely not alone on this.

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  • Ryan Randall
    OP
    NH · Member since 2016 · 56 posts · 73 votes
    4y

    @Nick Riccio

    Thanks for the thoughtful reply on this. I started going the HELOC route. Giving up a 2.25% interest rate would be really difficult to justify. I don't see a need for the FHA loan again, at least not yet.

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  • Nicole Heasley Beitenman
    Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
    4y
    Quote from @Nick Riccio:

    2. If you don't need to use FHA again, I'd consider leaving the loan as-is, and leveraging a HELOC. This will keep your current mortgage intact.

    Came here to say the same thing. I agree with Nick 100%.

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