Refinance for cash flow?

[Will Pritchett]

I have a rental that was bought as my residence about twelve years ago. Cash flow neutral after expenses. Value about 165,000.00 Purchased at 130,000. Owe 90,000. Will be paid off in 15 years as it stands. Trying to decide whether or not to refinance to increase cash flow.

Last year tenants paid down over 3k in debt for me despite the lousy cash flow. I naturally lean towards paying down debt for the eventual jump in cash flow when it is paid off. The other option is to refinance the existing balance to increase cash flow by maybe 200 dollars. Interest rate will probably stay about 5% if my numbers are right. I would roll fees into the loan probably.

Other pertinents: I have one other rental that we recently purchased (with better cash flow) and hope to own many more. I am teetering between these options right now. Any increase in cash flow would be used to purchase more rentals and build reserves. The numbers aren't huge in either direction but I would love to get some feedback to see this decision from different angles.

Thanks,

Will

[Will Pritchett]

Man, those are all great points and questions. Maybe I should look again at the equity there. The current rate is 5.25 on FHA loan. I just closed on an investment property last week at 5% so I would hope to keep the rate close to what it is now. Going to a 15 year note wouldn't improve my current situation since I am at about a 15 year payoff now anyway.

Selling and taking my equity to a better property is an option but I see more appreciation in this property than in the neighborhood where my other property is (which cash flows more). I also dread the transaction costs of a sale. I bought this house with almost nothing down so my initial investment is minimal. I am still a newbie so balancing debt paydown with cash flow and appreciation just has my head spinning a bit.

Our long term strategy is buy and hold.

I am coming at this from a former Dave Ramsey addict's perspective. I want to use leverage but fear what that leverage can do when used against me. In real estate I hear about leverage being used to our advantage but I don't hear much about when it works against us. I am trying to figure out how to hedge my bets a bit and I guess I see that wasted equity as a safety net sitting in that home in case I'm not as good an investor as some of you seasoned folks.

Are there any threads here about those who were overleveraged in '08-'09 that failed or others that weathered the storm? I just want to be realistic about both ends of the lever.

-Will