Regarding Cashout refinancing

BRRRR - Buy, Rehab, Rent, Refinance, Repeat
2yFollow

Regarding Cashout refinancing

Hyeseong Park
Rental Property Investor · Philadelphia, PA · Member since 2023 · 68 posts · 18 votes

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.)

3Reply
53 views

Most Popular Reply

Katherine Blazer
Lender · Tampa/St. Petersburg/Sarasota FL and Knoxville/Sevierville/Maryville, TN · Member since 2018 · 361 posts · 178 votes
2y

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. 

2Reply
See this reply in the discussion

10 Replies

Jump to latestLatest
  • Katherine Blazer
    Lender · Tampa/St. Petersburg/Sarasota FL and Knoxville/Sevierville/Maryville, TN · Member since 2018 · 361 posts · 178 votes
    2y

    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. 

    2Reply
  • Hyeseong Park
    OP
    Rental Property Investor · Philadelphia, PA · Member since 2023 · 68 posts · 18 votes
    2y
    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. 

    0Reply
  • Katherine Blazer
    Lender · Tampa/St. Petersburg/Sarasota FL and Knoxville/Sevierville/Maryville, TN · Member since 2018 · 361 posts · 178 votes
    2y
    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

    0Reply
  • Travis TimmonsPro Member
    Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
    2y

    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. 

    1Reply
  • Hyeseong Park
    OP
    Rental Property Investor · Philadelphia, PA · Member since 2023 · 68 posts · 18 votes
    2y
    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

    0Reply
  • Travis TimmonsPro Member
    Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
    2y

    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. 

    0Reply
  • Jake BakerBusiness Member
    Flipper/Rehabber · San Diego, CA · Member since 2020 · 1k+ posts · 696 votes
    2y

    @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? 

    [email protected]
    BookkeepingRE - Bookkeeping for Real Estate & Service-Based Businesses52 Reviews
    WebsiteView Page
    0Reply
  • Hyeseong Park
    OP
    Rental Property Investor · Philadelphia, PA · Member since 2023 · 68 posts · 18 votes
    2y
    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!
    0Reply
  • Chris Barrett
    Investor · Madison WI · Member since 2021 · 177 posts · 103 votes
    2y

    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. 

    1Reply
  • Hyeseong Park
    OP
    Rental Property Investor · Philadelphia, PA · Member since 2023 · 68 posts · 18 votes
    2y
    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
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free