First REFI (7.625% rate)

[Dan Porter]

Good afternoon all,

Looking for some quick advice as this is my first REFI and I am having alot of doubts. I bought this property in college, renovated it while renting out the spare rooms and no use the property as a long term rental. I would like to pull the equity so I can continue building my portfolio. However I am having doubts- rates are so high right now I will be making under $100/month in cash flow. My cash out will be 66k, which is very exciting, but I will need a 16% return to justify the loss in cashflow. Below are some additional numbers:

Previous loan:

88k

2.75% int

$950/month cash flow

New loan:
168k

7.625% int

100/month cash flow

Please let me know what you think of this.. I can REFI when rates get low again- but there is no telling how long that will be and it costs 5-10k to refi.. Any advice is greatly appreciated!!

[AJ Exner]

Quote from @Dan Porter:

Good afternoon all,

Looking for some quick advice as this is my first REFI and I am having alot of doubts. I bought this property in college, renovated it while renting out the spare rooms and no use the property as a long term rental. I would like to pull the equity so I can continue building my portfolio. However I am having doubts- rates are so high right now I will be making under $100/month in cash flow. My cash out will be 66k, which is very exciting, but I will need a 16% return to justify the loss in cashflow. Below are some additional numbers:

Previous loan:

88k

2.75% int

$950/month cash flow

New loan:
168k

7.625% int

100/month cash flow

Please let me know what you think of this.. I can REFI when rates get low again- but there is no telling how long that will be and it costs 5-10k to refi.. Any advice is greatly appreciated!!

You could refinance at less leverage, which should lower your rate and lower your total loan amount which would, in turn, lower your monthly payment and cash flow a little better.

Question just becomes a 'cash now vs. cash later' situation.

[Erik Estrada]

Quote from @Dan Porter:

Good afternoon all,

Looking for some quick advice as this is my first REFI and I am having alot of doubts. I bought this property in college, renovated it while renting out the spare rooms and no use the property as a long term rental. I would like to pull the equity so I can continue building my portfolio. However I am having doubts- rates are so high right now I will be making under $100/month in cash flow. My cash out will be 66k, which is very exciting, but I will need a 16% return to justify the loss in cashflow. Below are some additional numbers:

Previous loan:

88k

2.75% int

$950/month cash flow

New loan:
168k

7.625% int

100/month cash flow

Please let me know what you think of this.. I can REFI when rates get low again- but there is no telling how long that will be and it costs 5-10k to refi.. Any advice is greatly appreciated!!

Is your goal to keep buying and expanding your portfolio? Or are you okay having this rental at a low rate? You may want to look into a HELOC or 2nd Mortgage instead of a traditional refi.

[Jay Hurst]

Quote from @Dan Porter:

Good afternoon all,

Looking for some quick advice as this is my first REFI and I am having alot of doubts. I bought this property in college, renovated it while renting out the spare rooms and no use the property as a long term rental. I would like to pull the equity so I can continue building my portfolio. However I am having doubts- rates are so high right now I will be making under $100/month in cash flow. My cash out will be 66k, which is very exciting, but I will need a 16% return to justify the loss in cashflow. Below are some additional numbers:

Previous loan:

88k

2.75% int

$950/month cash flow

New loan:
168k

7.625% int

100/month cash flow

Please let me know what you think of this.. I can REFI when rates get low again- but there is no telling how long that will be and it costs 5-10k to refi.. Any advice is greatly appreciated!!

 what is the property worth today?

[Dan Porter]

Quote from @Jay Hurst:

Quote from @Dan Porter:

Good afternoon all,

Looking for some quick advice as this is my first REFI and I am having alot of doubts. I bought this property in college, renovated it while renting out the spare rooms and no use the property as a long term rental. I would like to pull the equity so I can continue building my portfolio. However I am having doubts- rates are so high right now I will be making under $100/month in cash flow. My cash out will be 66k, which is very exciting, but I will need a 16% return to justify the loss in cashflow. Below are some additional numbers:

Previous loan:

88k

2.75% int

$950/month cash flow

New loan:
168k

7.625% int

100/month cash flow

Please let me know what you think of this.. I can REFI when rates get low again- but there is no telling how long that will be and it costs 5-10k to refi.. Any advice is greatly appreciated!!

 what is the property worth today?

$225k

[Jay Hurst]

Quote from @Dan Porter:

Quote from @Jay Hurst:

Quote from @Dan Porter:

Good afternoon all,

Looking for some quick advice as this is my first REFI and I am having alot of doubts. I bought this property in college, renovated it while renting out the spare rooms and no use the property as a long term rental. I would like to pull the equity so I can continue building my portfolio. However I am having doubts- rates are so high right now I will be making under $100/month in cash flow. My cash out will be 66k, which is very exciting, but I will need a 16% return to justify the loss in cashflow. Below are some additional numbers:

Previous loan:

88k

2.75% int

$950/month cash flow

New loan:
168k

7.625% int

100/month cash flow

Please let me know what you think of this.. I can REFI when rates get low again- but there is no telling how long that will be and it costs 5-10k to refi.. Any advice is greatly appreciated!!

 what is the property worth today?

$225k

 AS mentioned above the higher the loan to value the higher the rate. So, for example, if you only pull out 60% ltv, so 135k, the rate would be 3/4% or so lower. Less cash of course but would lower your cost of insurance and also leave you with more of a monthly cash flow cushion. 

[Jon Puente]

Hey Dan, 

Have your lender price out at different LTV's and see if that helps (instead of getting the max cashout). I dont know what the value is of that property, but try 70% LTV and 60% LTV and see if that helps the interest rate (it should).

Likewise, your payment will be slightly lower and you can continue to cashflow more and still get some extra money to reinvest. HELOC is another option too as long as your DTI can support it.

Great Question!

[River Sava]

Hi Dan - 

As others mentioned, lowering leverage can helo achieve a lower rate. As well as buying it down with points. Might be worthwhile if you are looking to immediately continue to grow your portfolio. 

Also, there was great market movement yesterday. Inflation declined by 0.1% for the first time since May 2020. Some of the gains did diminish from yesterday, however, it is good sign for rate outlook. Happy to connect and chat further to see if it would make sense to do a cash out right now. 

[Chris Barrett]

Don't Refi - at the very least get a 2nd mortgage and keep your cashflow closer to 350 a month to have a buffer for repairs and cap ex. Keep that 2.75 mortgage as long as you can. 

[Tarik Turner]

Depends on your real estate goals and if you have a solid plan for the equity, but the days of getting 2% to 3% rates are far behind us and aren't coming back anytime soon. This is the main cause of the stagnation in real estate right now. People who had those great rates, if they were to sell their property today and buy another property at the same exact price their mortgage would double. I believe everyone expects rates to drop a bit but still will not touch those levels. (IMO)

[Kyle Hendricks]

Lender here, I would look at using a HELOC and keep that 2.75% on the rest of the debt. Plus with HELOC's you can only pull what you actually need and pay it down/pull the cash out as you need it.

[Greg Kasmer]

Quote from @Kyle Hendricks:

Lender here, I would look at using a HELOC and keep that 2.75% on the rest of the debt. Plus with HELOC's you can only pull what you actually need and pay it down/pull the cash out as you need it.

Dan - I agree with others about exploring a HELOC first to pull out some equity as opposed to refinancing. The only issue I've found is that it's hard to find a lender willing to provide a HELOC in second position (behind your initial mortgage) for an investment property. For a property you live in (owner-occupant) is one thing - an investment property is another.

Kyle Hendricks - Do you have any lender suggestions for a HELOC on investment properties?

[Kyle Hendricks]

Quote from @Greg Kasmer:

Quote from @Kyle Hendricks:

Lender here, I would look at using a HELOC and keep that 2.75% on the rest of the debt. Plus with HELOC's you can only pull what you actually need and pay it down/pull the cash out as you need it.

Dan - I agree with others about exploring a HELOC first to pull out some equity as opposed to refinancing. The only issue I've found is that it's hard to find a lender willing to provide a HELOC in second position (behind your initial mortgage) for an investment property. For a property you live in (owner-occupant) is one thing - an investment property is another.

Kyle Hendricks - Do you have any lender suggestions for a HELOC on investment properties?

 Hey Greg,

Yes I actually have a few options for investment HELOCS myself. 

[Alex Bekeza]

Did you end up closing this refi? Rates fell off a cliff this week so might be a good time to revisit things.  @Dan Porter

[River Sava]

Quote from @River Sava:

Hi Dan - 

As others mentioned, lowering leverage can helo achieve a lower rate. As well as buying it down with points. Might be worthwhile if you are looking to immediately continue to grow your portfolio. 

Also, there was great market movement yesterday. Inflation declined by 0.1% for the first time since May 2020. Some of the gains did diminish from yesterday, however, it is good sign for rate outlook. Happy to connect and chat further to see if it would make sense to do a cash out right now. 

 @Dan Porter Following up here as rates took a dive. Did you end up moving forward? If not, it might be worthwhile to see what a quote would look like right now. 

[Connor Hibbs]

Hi Dan, Refinancing at a lower LTV will make your monthly expense lower which helps your monthly cashflow but will also help you to secure a lower interest rate so that could be a good starting point for you.

Another thing to keep in mind is when you'd expect/ be able to refinance after this refi. Most DSCR loans are going to come with prepayment penalty periods (PPP). You'll want to confirm how many years your PPP would be and what the penalties are as they may be a stepdown such as a 5/4/3/2/1 or they could be fixed as in a 5/5/5/5/5 for the penalty.