A little over a year ago in the fall of 2021, I remember thinking, and almost posted, "This is the Golden Age of cash out refis". The rates were ultra low in the high 2s (15 yr) to mid 3s, new house sales were expensive and difficult to obtain, and 40% appreciation realized in just two years. For the rental property owners that had property for many years, it felt like an opportunity to pull out money (for future use) mostly to capture such a cheap rate. I had thought the window of ultra low rates was going to close several years before it finally did this year, but with these other factors, working with ones current portfolio seemed to make sense. What to do with the money pulled out? With new opportunities to buy limited, renovation at turnover to capture higher rents with existing rentals made sense. Addressing any deferred maintenance and bringing the property up to a higher level to reduce future maintenance was a good use. Always keeping an eye out for new opportunities while having patience and the ability to go after them with extra reserves was another use.
Moving forward, what is this the Golden age of that we are in now? Things are different than one year ago. It's tempting to say wait until 2023 and that will be an opportunity mid year to purchase, and that may be the case. But what is the opportunity of today if it presents itself?
Here a couple possibilities imagined.
A) Increase cash flow from existing properties. This sounds basic, but inertia exists. With long term tenants, rent increases can lag. It can be difficult with mental obstacles to bring good long term tenants closer to market, and there can be reasons to be patient too, however it is an opportunity. At turnover though, it is prime time to capitalize on this. And if the unit could use some TLC, it can certainly be worth a partial renovation that will attract better tenants, yield higher rents, give back for many years to come, and make it easier in general to rent out. There may be other ways to increase cash flow...is there the ability to create an extra bedroom, ability to split into two units, rent out a garage for storage, all with long term rentals, or other strategies like medium term.
This is an interesting podcast by the cohead of global real estate at Black Rock. One of her basic concepts is to simply increase cash flow in today's environment.
https://podcasts.google.com/fe...
B) New listings for sale. There have been new listings at more attractive price points emerging for the first time in our region in two years. Watching for good value at prices that work with today's rates.
Even with higher rates, with cash flow from other properties, some of this can be applied as extra principal to the newly acquired property every month for a few years. Even if rates do not come down in a couple years, paying extra towards the higher rate will accelerate the amortization schedule by many years quickly enough....and flip the monthly payment to have a much greater portion going towards principal and less to interest... This seems like a key mitigating strategy for today's higher rate environment and also makes you see and be prepared for the lower prices and better value that seems to be coming into today's (and next year's) market with the new properties coming out for sale.
Curious what others see as far as the opportunity and what the golden age of todays is.
