All Forum Posts by: Todd Handriegh

@Todd Handriegh, I think you need to write down your strategy and stick to it, because as I see it, your actions are at cross-purposes. 

Do you want to scale?  Then pull out a lot of cash and put your loans on long terms. Let the tenants pay the mortgages down, and don't worry about the interest paid over time.  It is deductible.  Save up an emergency fund.  Save for the next down payment. Rinse and repeat.

Do you want to pay off debt?  I personally would keep the long term mortgages, rather than the forced repayment of a 15 year amortization.  I have used the debt snowball...take all extra rents and accelerate the mortgage pay down on one house at a time, until they are all paid off.

My own strategy was to go "wide" and then go "deep."  What is yours?

I think you need a new loan broker. I am closing tomorrow on two 30 year, jumbo cash out investment loans (one is cashing out ~1.75M) at 3.625%. With these 2 loans I have 9 rental loans (and one OO loan).

I do recognize credit score, assets, LTV (the one where I am cashing out $1.75M will be at 70% LTV and is a quad), points/fees, etc. play a role in the rates, but your rate sucks.

Also spending $4K to get $17K implies that you are paying 23.5% for your cash out prior to including the interests.  That is steep price to pay.  I do recognize you are also lowering your payment which increases your cash flow but that comes with a price (basically the loan duration greatly increases the total interest you will pay).

Now lets stay that you put the $17K in the S&P500 and that the S&P out produces your interest rate by 5% (so total of 9.5% which is really close to lifetime S&P500 return), it will take over 4 years to pay off the $4K, but it it worse than that because the $4K is paid up front (you return is in inflation adjusted dollars).

I understand the cash flow and I understand that in the long term you should find it easy to out perform the 4.5% interest.  My issue is that the cost of the money is too high.  $4k to get $17K and significantly higher interest rate (more than should be expected for going from 15 year to 30 year).

Normally I recommend refi over HELOC for long term use or unknown duration use (because HELOC are traditionally variable rate). However, in your case the fees are so high compared to the extract that I recommend at least looking into the HELOC. Recognize that the HELOC variable rate is more likely to go up than stay low or go down (because fed has already announced their intent to raise rates).

Good luck

@Ted Hendry - don’t refinance. You paid points. You paid closing costs. Only person getting rich here is your mortgage lender. 3.5% is a great price. Yes you screwed up choosing a 15 year but move on, it’s ok. Work on optimizing your rent and expenses. My rent is up 20% year over year. I would only consider cash out if there was 100k+ trapped equity I couldn’t access at all.

Locally, See if you can set up a line of credit with any local credit union for any tied up equity in your properties up to 75-80% value.

Then work on getting some creative deals done or seeing if you can buy some more properties with 30 year investor financing and cash on hand you have.

If you think that your equity in s&p500 is better, maybe you just want to sell and cash in all your equity.

Also remember appraisers come up with different valuations. I had one appraisal for 310 and another appraisal for 365 on the same property in March 2021 within 1 week, with both given the same sheet of information about what I’m currently renting it for and what recent upgrades I did to it. (Always prepare this sheet so you can guide them to the valuation YOU want them to state).

Good luck buddy.

@Ted Hendry refi !

@Ted Hendry

I would not refi again just for 17k.

Well, here are some thoughts, even though there is some missing info in the original post.

cash out investor loan @ 4.5% does not sound great, but that depends on some more specifics (LTV, FICO, loan amount, etc).

I just checked an online lender I know of and it looks like they will do a 30 year, 75% LTV, cash out investment (non-owner occupied) conforming loan, for Borrower with a 720+ FICO, @ 3.75% with total estimated fees of $1,919. You can get down to 3.5% with total estimated fees of $3,629. And your rate could be even .125% better with a great FICO of 740+ (3.375% @ $3,294 estimated fees) or better with higher fees. This is as of today.

So, #1 - your deal doesn't sound terrible, but not great either. But, again, that depends on your FICO, loan amount, LTV, etc.

#2) One of the only reasons to do a 15 year loan, is if you just don't want the hassle of paying extra principal on your own - kind of a forced savings account, where you are required to put a certain amount in every month. In other words, you can often get the same or similar "effective" interest rate on a 30 year loan, by just paying additional toward principal every month. But, the 30 year schedule preserves the option to pay the lower 30 year monthly payment, if you want the increased cashflow. I am sure you can find mortgage calculators online to figure that stuff out. 

#3) For most loans, you have the option of paying a minimum chunk down and then having the loan "recast" over the remaining term, which will lower your monthly payment. That way, if you decided having the cash out is not doing you any good, and just costing you money, you can just pay the principal down and essentially get back to the original loan amount. But, I think the minimum pay down may be $25k, but you have to check with the specific lender.

#4) 3.5%-4% money is still pretty cheap  and I think there should be opportunities to put it to use to make more, but $17k is not a whole lot to put to use on additional properties, in most markets.

#5) There are lenders that will do HELOCs on rental properties. That might be a way you can have the potential to easily and quickly get the cash out if needed, without having to pay for it to sit on the sidelines.

Well, here are some thoughts, even though there is some missing info in the original post.

cash out investor loan @ 4.5% does not sound great, but that depends on some more specifics (LTV, FICO, loan amount, etc).

I just checked an online lender I know of and it looks like they will do a 30 year, 75% LTV, cash out investment (non-owner occupied) conforming loan, for Borrower with a 720+ FICO, @ 3.75% with total estimated fees of $1,919. You can get down to 3.5% with total estimated fees of $3,629. And your rate could be even .125% better with a great FICO of 740+ (3.375% @ $3,294 estimated fees) or better with higher fees. This is as of today.

So, #1 - your deal doesn't sound terrible, but not great either. But, again, that depends on your FICO, loan amount, LTV, etc.

#2) One of the only reasons to do a 15 year loan, is if you just don't want the hassle of paying extra principal on your own - kind of a forced savings account, where you are required to put a certain amount in every month. In other words, you can often get the same or similar "effective" interest rate on a 30 year loan, by just paying additional toward principal every month. But, the 30 year schedule preserves the option to pay the lower 30 year monthly payment, if you want the increased cashflow. I am sure you can find mortgage calculators online to figure that stuff out. 

#3) For most loans, you have the option of paying a minimum chunk down and then having the loan "recast" over the remaining term, which will lower your monthly payment. That way, if you decided having the cash out is not doing you any good, and just costing you money, you can just pay the principal down and essentially get back to the original loan amount. But, I think the minimum pay down may be $25k, but you have to check with the specific lender.

#4) 3.5%-4% money is still pretty cheap  and I think there should be opportunities to put it to use to make more, but $17k is not a whole lot to put to use on additional properties, in most markets.

#5) There are lenders that will do HELOCs on rental properties. That might be a way you can have the potential to easily and quickly get the cash out if needed, without having to pay for it to sit on the sidelines.

Well, if it were me, I'd have left things as they were. You don't seem to have a particular need for or a clear cut plan how to redeploy the cash. I think that the future is likely to have some instability in the financial world and having a bit of equity in the property probably wasn't a bad idea. Putting borrowed funds into equities seems like a particularly risky endeavor as the growth may be negative over the next several years. This will have to be your decision as the rest of us are only going to be giving our opinions and don't have all the data you do.

Hey Ted, thanks for sharing your experience. I'm curious did you get any other quotes when you first started the process? 4.5% seems pretty high even with you pulling out cash..

The way that I look at it is that even if you don't love your new loan it doesn't have to be your forever loan. I'm sure rates will drop again in the future and you could cut it down even below the 3.5% you had it at. I would chalk this up as a learning experience, hind sight is 20/20... I'd still move forward with it unless you think that you will end up selling your home in the next year or two. 

If you aren't planning on staying long term another option could be to use the money to improve your home's value for the next time you are looking to do a cash out refinance? Otherwise the stock market doesn't seem like a bad place to put your money. 

Personally, I would stick with a past decision that was sub-optimal but good enough and focus on the next deal. Rather than continually try to optimize the past deal at the cost of time and loan costs. Right now I have a property that I could cash out refi and bring down the rate, but ultimately it makes the most sense to sell, cash out, and look for the next deal to maximize my return on equity.