Need some advice... Refi, sell to buy bigger, or what?

Question

Hi Everyone,

It's been a bit since I posted.  I have been doing the BRRR method for the last few years and so far have been successful.  I'm up to 5 SFR each with at least 100K equity but with rates at today's highs I need some advice on what to do.  I'm holding enough for emergencies but doing so leaves me little to do another BRRRR.  I was thinking of refinancing and just absorb today's rates until they go back down just to get some capital to do another BRRRR or should I sell a few and do a 1031 into a larger commercial?  Need some guidance please.

Thank,

Jason

Andrew Postell · Answer

@Jason Medina congrats on the on going success!  That's awesome!  And yes, the higher interest rates do make cash flowing harder right now.  But how long will you need to wait to refinance?  And are you sure you will only have to wait that long?  People back in July were saying they were going to wait as well...there's always going to be a reason of NOT doing something.  If you go to commercial....those have high rates too.  The same problems exit on that side as well but they are just larger.  Warren Buffet says he never tried to time to market - because he can't.  But he does buy on value. And that's what happens when rates go higher - we should be getting better deals in front of us.  This is my 3rd recession.  And yes, I am buying now.  If I expect to cashflow $300 per month...that's $3600 per year.  So reduce you buying price by $5,000 to compensate for it.  If you are building in $50,000 in equity that would take you over a decade to get.  Keep buying on that value, and yes, refinance to get the money out and do it again.  In 5 years you will be very thankful to have these properties.

Hope all of that makes sense.

Steven Goldman · Answer

@Jason Medina    It is only a matter of time before prices recede to match the current interest environment. Time on market is increasing which will result in prices decreasing. @Andrew Postell has good wisdom when he advises you to make the numbers work by reducing your offers to match the new rate reality. Having been through numerous cycles, those who keep moving keep growing those who stand pat lose time. Time is your most valuable commodity! Good luck.

Drew Sygit · Answer

Refinance to add to your cash kitty for either rainy days or a GREAT deal.

If rates keep going up and the slowing economy leads to more layoffs, there will be more foreclosures. Too many foreclosures will spook banks, causing them to tighten up on loans - especially cashout refinances.

So, tap your equity now, you can always refinance when rates drop in the future.

Eliott Elias · Answer

Horrible time to refi, but if you have a deal in mind to put the cash I would pull it out. You can buy your way out of a prepayment penalty for refinancing or selling it after 3 years

Dan Turkel · Answer

I encourage you to look into getting some kind of HELOC in the 2nd position for one of your properties if you have enough equity

Stephanie P. · Answer

Lots of good advice, but I would add this;

If you have 5 properties, do an analysis of the properties and sell one that will yield you the most cash.  Sit on it until there's a correction and then buy a better deal.

Jason Medina · Answer

If go the recommended route of @Andrew Postell then cashflow "should" be near identical.  I'm getting an avg of about $250 per unit.

Ash Hegde · Answer

How does your cash flow look if you cash out refi with todays rates? If your goal is to keep going and keep growing, this is likely your best bet if the numbers still work.

Erik Estrada · Answer

I would suggest looking into a second position hard money loan.

You can also cross collateralize both the second position and the first for the purchase. More risk here but you get out of having to refinance your low interest rate and you can put little down on your next purchase.

Jason Medina · Answer

Super helpful.  Thank you.  I'll just look for more value.  I hate the idea of slowing down or stopping due some hurdle but love the idea of finding a way to overcome it.  This is why I'm asking the experts at BP! :)

Need some advice... Refi, sell to buy bigger, or what?

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