Cash out refi now at 70% LTV or season and wait to do 80% LTV?

Question

Hi,

Curious if anyone has what to say in terms of how to calculate which one is more worth it: to cash out refi on a Long term rental now at 70% LTV, and walk away with X amount of positive cash AFTER paying all debt, (X is a positive number and significant amount for me), which will allow me to potential get another long term rental and grow portfolio faster, or wait 4 months and cash out 80% LTV, giving me DOUBLE than X. I don’t have a deal in the works if I DO cash out NOW, but I can start to work on one. Meanwhile, waiting 4 months will cost me $3,500 in interest, - though less than a second DSCR - and will prevent me from making another purchase and rehab, which I potentially can do all in 4 months. Of course, waiting is safer. But is it more worth it? Am I being dumb by NOT waiting, because it’s unlikely - I assume - my next deal will be as profitable (I got very lucky on this one!)

How do I weigh all the pros and cons?

Thanks!

Pat Lulewicz · Answer

Percents and "doubles" are useful pieces of information, but what is the net amount we're talking about? $1,000 v $2,000 or $20,000 v $40,000. The latter is something I would personally wait for. The power of leverage is one of the main benefits that distinguishes RE from other investment choices, and the refi is where real wealth is made. Does the property still cash flow well at 80%? If it's tight or you're uncomfortable with the tenant you have in there from a confidence perspective, especially if this is a first deal, maybe meet in the middle and get a lender at 75% or 77% (doesn't HAVE to be at 5% increments) that wont make you season, and leave a bit more money in the deal, but sleep better.

Overall, if I cash flow well, have/keep reserves, and am comfortable I fixed everything in the house, I like to max out the LTV on refi.

Overall, if I cash flow well, have/keep reserves, and am comfortable I fixed everything in the house, I like to max out the LTV on refi.

John O'Leary · Answer

Borrowers in certain states or with high credit scores may qualify for  80% cash-out , but it’s important to weigh the pros and cons. Higher LTV ratios come with higher interest rates, so you’ll want to think about how this could affect your overall return. Think of the rate using an X and Y axis with credit and LTV. Many lenders include a prepayment penalty  that lasts 3-5 years, which could limit your ability to refinance again if rates drop in the future. While cashing out more equity might seem appealing, it will result in a lower cash-on-cash return due to the higher rate and LTV. If interest rates fall later, refinancing again might require you to bring extra funds to the table, which could impact your overall investment strategy. Some investors rely on the BRRRR method to keep their capital working, but in a high-rate market, a short-term strategy like flipping a property could also provide a quick cash injection to maintain growth.

Scott Wolf · Answer

The pros and cons most likely have to do with your goals.  If your goal is growth, a refi now might make most sense, but only you can make that decision.

I'll also second what @Jaycee Greene mentioned that most lenders won't go to 80% LTV on a cash out refinance.  My firm goes to 75% on a cash out, as long as all seasoning requirements are met.

Nate Herndon · Answer

@Levi Perl all of the respondents above (@Jaycee Greene, @Pat Lulewicz, @Scott Wolf) have some really good inputs. From my perspective on the private lending side (bridge loans, 30-year DSCR, etc.) I would be curious why you feel capped at 70% LTV on your cash-out right now.

Here is a post where I addressed seasoning and available leverage for an all-cash BRRRR deal, but will repost here as well: https://www.biggerpockets.com/forums/311/topics/1212888-dela...

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Here's a quick breakdown of the eligible loan amounts based on an all-cash investment strategy, but the same applies if you have a mortgage on the property as well:

• 0-6 Months (Delayed Purchase, no Rehab completed) - up to 80% of purchase price• 6+ Months (Cash-Out Refinance, no Rehab completed) - up to 75% of appraised value• 0-3 Months (Cash-out refi, Rehab completed) - 75% of appraised value [good rates]• 3-6 Months (Cash-out refi, Rehab completed) - 75% of appraised value [best rates]

My one caveat is that a 1-4 unit residential property in Missouri is eligible for an 80% cash-out, albeit at a higher interest rate premium (8.625% @ 80% LTV vs. 6.875% @ 75% LTV today).

Simmy Ahluwalia · Answer

@Levi Perl - we can cashout at 75 or 80% (based on your dscr) at any time (tenant ready).  Reach out if you want to discuss.

Jake Baker · Answer

@Levi Perl

Leverage vs. Liquidity: If this is your first or second property, prioritizing liquidity (by cashing out now) might allow you to seize unexpected opportunities, especially if you’re actively prospecting deals.

Since you don’t have a deal lined up yet, you might explore options to minimize the gap, like prequalifying potential deals or using short-term financing strategies to bridge the 4 months.

Good luck growing your portfolio!

Erik Estrada · Answer

Hi Levi,

I think you should talk to more lenders. You can do an 80% cash out with no seasoning as long as there is rehab work completed. Rate will be high but if you are looking to get the most amount of cash out possible as quickly as possibly, then maybe this will be a solution for you.

Todor Ialamov · Answer

Talk to all of the local credit unions. You might be able to find 80% if that’s your goal.

Brittany Minocchi · Answer

75% LTV is the cap on cash out with many (but not all) lenders, so I'd make sure you have a viable option for 80% before you make your decision. However, I'm guessing the reason you're saying you need to wait 4 months is because of a required seasoning period? If so, up to 80% LTV with NO seasoning is available assuming you've completed rehab and the property is in an eligible state (some lenders have different max LTVs based on the state the property is in). Without rehab, you're likely stuck waiting 3-6 months minimum.

Connor Hibbs · Answer

Hi Levi,

The first question is if this is currently on a short-term loan as the 3,500 over 4 months is fairly significant and you may want to look at refinancing sooner. Also, while you can get up to 80% cash-out with a 720+ FICO and a 1.0+ DSCR I don't see why you're being capped at 70% LTV currently.

An option for you could be to go with a DSCR loan with a reduced prepayment penalty period so that you can get funds soon and if you want to refinance next year or the following due to lower rates or wanting more LTV than you're able to do so.

You should look at this one with the mindset of:

1) What would my expenses be once I refi vs what they are now?

2) Is the extra LTV on cash-out worth the increase in interest rate and if not, how much LTV would I need to go get the next property?

3) Will I be increasing the DSCR of my property over the next 4 moths? If so then that may help to bget better terms in the refinance.

Cash out refi now at 70% LTV or season and wait to do 80% LTV?

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