Hi BP Friends-
Turning to the community for help evaluating a refinance that I'm considering. Would love any thoughts or expertise you can share to help me in my deliberations.
Quick overview of the situation:
Exactly one year ago, I purchased two condos which are rented as STRs on Airbnb (and enjoyed by me and my family occasionally). The numbers (for both units combined, held on the same mortgage): Purchase Price: $299k, Down payment: 25% (Cash-to-close totaled ~$84k), Interest rate (6.25% fixed for 5 years, then variable at prime + 1.5%, 25-yr amort., 10 year maturity)
First year performance was stellar. They averaged $2300/month in pure cash flow after all expenses for a COC return of ~35%.
As I was keeping an eye on the market over the past year, I noticed a ton of strong comps selling for about 50% more than we paid. Considering this appreciation, I began exploring refinance options with the hopes of cashing out to get all (or at least most) of my money back out>>>>(Essentially a BRRRR without the "rehab"). With the market cooling, this seemed to be a "strike while the iron's hot" scenario.
I had a lot of banks tell me I had to wait until next year, when I had a full year's worth of Airbnb revenue on my tax returns in order to qualify. However I did find a lender willing to do this now with a non-QM DSCR product (which I'm told are common for STRs). I've started down the process with the lender and the appraisal came back at $460k for the pair of units (so just about at 50% more than I paid!). The terms are not as great, but I'm wondering if it's still worth it to get (some of) my cash out. Here's the details on the new loan: 65% LTV, 9.375% interest (30-year fixed), high points & closing costs totaling $24k (mainly due to them having the do separate loans for each unit, effectively doubling the costs). The new loan also has a prepayment penalty (which I guess is common with DSCR loans), so not ideal if i want to refinance again or sell within 5 years. Due to the lower LTV and high closing costs, I'm only going to get about $53k of my original $84k invested back out of the deal.
Using last years income numbers as averages, This basically will drop my cash flow to $1350/month (mortgage will be ~$1k higher), but now only having ~$31k left in the deal, COC return will be 53%.
I'm definitely stuck on this one and see pros & cons of doing the refinance, vs. not doing it:
Pros: I get $53k back out to go invest somewhere else (leaving less money in the deal). I have a higher COC return.
Cons: Hard for me to stomach $24k in closing costs....that feels like money thrown away. Lower monthly cash flow after refinance. Higher interest rate on the new loan.
All right that's it. If you read this far, THANK YOU!
let me know what you think! I would love to hear: what am I missing? How should I be thinking about this? What would you do?
