Author Topic: best bank for cash out refi on rental  (Read 551 times)

kenmoremmm

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best bank for cash out refi on rental
« on: June 06, 2019, 10:32:52 PM »
we have a rental property that's paid off. about $300k value. looking to take out $125k to kill off primary residence loan.

any recommendations on best banks to use for this type of transaction?

monarda

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Re: best bank for cash out refi on rental
« Reply #1 on: June 07, 2019, 07:28:36 AM »
We've always got the best rates from smaller, local, credit unions.  But a cash out refi will have a higher interest rate than your primary. It might very well cost more for you to do this. Have you calculated that this is still a good idea?

Enigma

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Re: best bank for cash out refi on rental
« Reply #2 on: June 07, 2019, 07:36:12 AM »
I did that with the commerical loans dept of a small local bank (4 branches total).  I went in and asked to put a loan against my rentals ($200k) to pay off a house in full (primary residence).

Hypothetically, 4% on a $125k primary house loan results in $5k in interest over the year.  Sad part is the standard deduction of $12k per person doesn't get close so you do not get to write it off on your taxes.  Taking a $125k loan against your rental IMO is a smart move because your capital gains (income - expenses - interest) writes off that interest.

Another Reader

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Re: best bank for cash out refi on rental
« Reply #3 on: June 07, 2019, 07:54:27 AM »
I did that with the commerical loans dept of a small local bank (4 branches total).  I went in and asked to put a loan against my rentals ($200k) to pay off a house in full (primary residence).

Hypothetically, 4% on a $125k primary house loan results in $5k in interest over the year.  Sad part is the standard deduction of $12k per person doesn't get close so you do not get to write it off on your taxes.  Taking a $125k loan against your rental IMO is a smart move because your capital gains (income - expenses - interest) writes off that interest.

If you are cross-collateralizing, you are taking on extra risk.  Commercial terms are generally not as favorable as well.  Shorter terms, often with variable rates.  If anything goes wrong, you risk losing all the properties securing the loan.  I get approached by lenders to do this all the time.  Thanks, but no thanks.

Enigma

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Re: best bank for cash out refi on rental
« Reply #4 on: June 07, 2019, 07:59:27 AM »
I had enough equity in my rentals and it sounds like kenmoremmm has enough that they would just put a lien against the rental.  The primary house would then be free and clear of any liens.

Another Reader

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Re: best bank for cash out refi on rental
« Reply #5 on: June 07, 2019, 08:11:35 AM »
I had enough equity in my rentals and it sounds like kenmoremmm has enough that they would just put a lien against the rental.  The primary house would then be free and clear of any liens.

How many of your rentals secure that loan?  Every one of them is at risk if you default.  What is the term of the commercial loan?  If it's short, circumstances may make it impossible to refinance when you need to.

I have watched far too many collapses of cross-collateralized loans and acquisitions of the underlying properties by the lender at steep discounts over the last few decades to consider taking the risk. 

Enigma

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Re: best bank for cash out refi on rental
« Reply #6 on: June 07, 2019, 08:27:12 AM »
How many of your rentals secure that loan?  Every one of them is at risk if you default.  What is the term of the commercial loan?  If it's short, circumstances may make it impossible to refinance when you need to.
I have watched far too many collapses of cross-collateralized loans and acquisitions of the underlying properties by the lender at steep discounts over the last few decades to consider taking the risk.
1.30MM rental empire
- Prior to the extra loan only 1 loan balance around $130k (90% paid off)
- After the extra $200k loan tacked directly on that loan as an improvement - $330k (75% paid off)
- Now primary house paid in full

Another Reader

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Re: best bank for cash out refi on rental
« Reply #7 on: June 07, 2019, 08:50:00 AM »
I live in pricey Silly Valley, so mortgage interest on the primary residence still makes sense to deduct when combined with mortgage interest and structured depreciation "losses" on the rentals.  If you are only taking a second on one property, that may be reasonable, if your "worst case" cash flow projections cover all your debt service.  My issue is with cross-collateralization, which risks multiple properties when there are less risky ways to finance one property.

Enigma

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Re: best bank for cash out refi on rental
« Reply #8 on: June 07, 2019, 09:49:57 AM »
I live in a LCOL TN area without a state income tax, property taxes are low, and I would be hard pressed to be able to write off $6k in interest from my primary residence with the $12k standard deduction.

kenmoremmm

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Re: best bank for cash out refi on rental
« Reply #9 on: June 07, 2019, 11:44:08 AM »
rental is paid off. approx value = $300k

primary has $302k left on mortgage (started at $345k in 2015). rate is 3.375% for 30 years, so obviously a pretty good deal.

we have $185k in cash that we were going to use to buy more rentals, but some recent deals that fell through plus a change in mindset has caused me to consider the refi path.

if we get a loan at 5% for the cash out refi for $120k, then we're looking at $660/mo in PI payments. primary residence PI payments = $1525, so +$865 net/month. plus, as noted, you get schedule E writeoff of interest on the rental (none on primary), so that's another $1100/yr for the first 5 years or so until interest starts dropping down.

wbranch

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Re: best bank for cash out refi on rental
« Reply #10 on: June 07, 2019, 02:57:06 PM »
rental is paid off. approx value = $300k

primary has $302k left on mortgage (started at $345k in 2015). rate is 3.375% for 30 years, so obviously a pretty good deal.

we have $185k in cash that we were going to use to buy more rentals, but some recent deals that fell through plus a change in mindset has caused me to consider the refi path.

if we get a loan at 5% for the cash out refi for $120k, then we're looking at $660/mo in PI payments. primary residence PI payments = $1525, so +$865 net/month. plus, as noted, you get schedule E writeoff of interest on the rental (none on primary), so that's another $1100/yr for the first 5 years or so until interest starts dropping down.

Using the funds to payoff your primary residence mortgage does not make it deductible on Sch E. Proceeds would have to be used for refinance/acquisition/improvements on the rental.
https://www.calcpa.org/public-resources/ask-a-cpa/tax-tips/deductions/if-i-refinance-rental-property-can-i-deduct-loan-interest

kenmoremmm

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Re: best bank for cash out refi on rental
« Reply #11 on: June 07, 2019, 03:18:53 PM »
thanks for that info. it doesn't change the final answer much in the grand scheme of the plan.