Refinancing Rental Property to Grow (or Start) Your Portfolio

“Can I refinance a rental property?” 

The short answer is yes. 

We have done this strategy a couple of times in our own investing journey and have found it to be very successful. 

A couple of things that you’re going to want to consider… One is do you understand what that means.

The whole idea behind refinancing a current property that you own is basically a couple of things. 

One, there has to be some equity built up in the property and if there’s been some equity built up in the property, essentially what you do is you take out a new loan on that property, 

That new loan pays off the old loan that you currently have on a property and you get a certain percentage of the difference between the old loan and the new loan.

Again, this is definitely a great strategy if you have done any kind of forced appreciation on the property.

Meaning, you’ve gone in and you’ve done some renovations, you’ve waited potentially six, to eight months and now, you can go and get a new appraisal and see if the value has gone up.

Another time that you can do this on a longer term is if you’ve just owned the property for a long time and the market has generally gone up.

I can tell you with a couple of the properties that we’ve done it with, it's been a huge chance for us to take that cash and roll it in to the acquisition of new property.

The first time we ever did a cash out refinance on one of our rental properties was our very first property. 

We bought it. We had to do some renovations because it was a HUD property.

And so, we went in and we renovated it. We got a tenant in there. We let it sit for about six to eight months. 

After that, we went it in, we did a cash out refinance, we took out a new loan, paid off the old loan and we got about $15,000 back into our pockets.

From doing that refinance we were then able to take and roll into the acquisition and purchase of another property. 

I would suggest if you’re going to use one or use this strategy, do it with purpose.

Don’t just decide, “Oh, I’m just going to do it because the market has gone up and I can get some cash.” 

Have a strategy of what you’re going to do with that cash. 

Are you going to use it to go renovate a property? Are you going to use it to roll into the acquisition and purchase of a new property? Maybe you’re going to use it to pay off some other debt that you have. 

But have a goal, have a mission with that cash that you’re going to use.

The other thing that I’ll mention that you’ll have to think about if you do decide to go the refinance route is that you will have to… Because you’re taking on a new loan on a property, pay some closing costs.

There will be some fees and lender fees and so, it’s going to cost you a little bit of money in order to do that. 

That’s one thing that you’re going to want to consider. The other question that you’re going to want to ask a lender if you’re going to go down this route is just what the loan to value ratio is. 

They’re not going to let you take out 100% of that difference of cash between loan A and loan B. You’re only going to be able to take out a percentage of that cash. Maybe it’s 75%, maybe it’s 70%.

That might depend on the bank or the current guidelines, government guidelines.

Definitely there are some innuendos here that you’re going to want to talk to a lender about. 

But generally speaking, yes, you can refinance a rental property and it can be a great strategy to use to help you grow and snowball your own portfolio.