Regarding Cashout refinancing

[Hyeseong Park]

Hello I'm curious if this strategy is theoretically possible to expand super fast wealth as below:

For example, I buy a rental property for $70,000 in cash and then immediately did a cash-out refinance to get $56,000 in cash (I know usually it takes 3-6 months season to cashout refi, but as long as one lender is able to do refinance it)

I then use $24,000 of the $56,000 I borrow as a 20% down payment to buy a $120,000 rental property. After that, I do another cash-out refinance on the $120,000 property at 80% LTV to get $96,000 in cash. Now I have $32000 + $96000 cash in my pocket. Is it feasible to get $96,000 in cash eventually from the second cash-out refinance in this way and keep expanding wealth in this way?

This is not BRRRR I think.
 

(As long as the real estate value, loan conditions, and cash flow all are feasible.)

[Katherine Blazer]

It's a great plan. Normally cash-out refinances are capped at 75% and of course, they will need to cash flow positively with principle, interest, taxes, and insurance. You will also want to confirm the loan and asset values minimus. Some banks really like $100,000 loan amounts. And it sounds like you are really looking for delayed financing. 

So your numbers may be a little off but it is doable. Where is the original $70,000 coming from?

$70,000 * 75% = 52,500. You could then do the $24,000 down on the next one, but you would not need to do the refinance. Your original loan amount would be $96,000. so you would have around $42,000 of the original $70,000 in down payments. You will also have closing costs. 

[Hyeseong Park]

Quote from @Katherine Blazer:

It's a great plan. Normally cash-out refinances are capped at 75% and of course, they will need to cash flow positively with principle, interest, taxes, and insurance. You will also want to confirm the loan and asset values minimus. Some banks really like $100,000 loan amounts. And it sounds like you are really looking for delayed financing. 

So your numbers may be a little off but it is doable. Where is the original $70,000 coming from?

$70,000 * 75% = 52,500. You could then do the $24,000 down on the next one, but you would not need to do the refinance. Your original loan amount would be $96,000. so you would have around $42,000 of the original $70,000 in down payments. You will also have closing costs. 

 yeah like delayed financing. But yeah wow, then people don't really have to get active income from flipping business or something like that if I do cash out refi well. 70k is when coming from my pocket. 

[Katherine Blazer]

Quote from @Hyeseong Park:

Quote from @Katherine Blazer:

It's a great plan. Normally cash-out refinances are capped at 75% and of course, they will need to cash flow positively with principle, interest, taxes, and insurance. You will also want to confirm the loan and asset values minimus. Some banks really like $100,000 loan amounts. And it sounds like you are really looking for delayed financing. 

So your numbers may be a little off but it is doable. Where is the original $70,000 coming from?

$70,000 * 75% = 52,500. You could then do the $24,000 down on the next one, but you would not need to do the refinance. Your original loan amount would be $96,000. so you would have around $42,000 of the original $70,000 in down payments. You will also have closing costs. 

 yeah like delayed financing. But yeah wow, then people don't really have to get active income from flipping business or something like that if I do cash out refi well. 70k is when coming from my pocket. 

 Ok. I would try to do 80% purchase loans on both.

So 70k*80% = 56k loan amount 14k down payment + you will also have closing costs
then 120k*80 = 96k loan amount and 24k down payment + your closing costs 
So you will have about 32k - closing cost and loan costs for an additional investment

[Travis Timmons]

You're getting way too cute. Life does not exist on a spreadsheet and this is not a sustainable strategy. 

Transaction costs, seasoning, pre-payment penalties, DTI impacts, minimum lending requirements (more than 50-60k), and a long list of other issues make this a bad strategy.

Buy 1 and see how it goes. Slow and steady still wins the race. 

[Hyeseong Park]

Quote from @Travis Timmons:

You're getting way too cute. Life does not exist on a spreadsheet and this is not a sustainable strategy. 

Transaction costs, seasoning, pre-payment penalties, DTI impacts, minimum lending requirements (more than 50-60k), and a long list of other issues make this a bad strategy.

Buy 1 and see how it goes. Slow and steady still wins the race. 

 explain nicely

[Travis Timmons]

That's fair...I was probably a bit too harsh. 

Investing in real estate is just really hard at the beginning. We all get big eyes and think about how quickly we can scale, but that's just not how it goes. Even when I hear stories about investors that scale quickly, take on max leverage, partner up, etc. and get 28 doors in 2 years, it's either a situation where all details and context are not communicated (rich parents - for example) or it was a "just because something worked does not mean that it was a good idea" situation.

You win the investing and real estate game by never being a forced buyer or forced seller and letting the compounding effect of time take over. The lure of easy money and scaling too quickly is the most likely path to being a forced seller. The only folks that would encourage this strategy would be a lender with something to sell or someone that is not an operator that had to scrap and stress his/her way to success like most of us. It's harder than you think and takes longer than you expect. 

[Jake Baker]

@Hyeseong Park

Are you buying with cash just to get the deal? Why not just finance at purchase instead of paying double closing costs for a refinance? 

[Hyeseong Park]

Quote from @Jake Baker:

@Hyeseong Park

Are you buying with cash just to get the deal? Why not just finance at purchase instead of paying double closing costs for a refinance? 

Assuming the finance doesn't go well for purchase, I mention this!

[Chris Barrett]

The properties need to make money, otherwise what's the point? At current rates, it would be extremely difficult to have maximum leverage and have any property pay for itself through normal rental income. 

[Hyeseong Park]

Quote from @Chris Barrett:

The properties need to make money, otherwise what's the point? At current rates, it would be extremely difficult to have maximum leverage and have any property pay for itself through normal rental income. 

Yeah but found some DSCR of 2 so