BRRRR or keep existing loan? Advice needed.

[Ryan Randall]

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!

[Nick Riccio]

@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.