Cash out Refi Primary Residence

[frogstomp81]

I'm looking into doing a cash out refi on my primary residence to fund real estate investment. Based on the numbers below I think it would make sense assuming any reasonable return on a rental property. How would you approach this calculation?

Current Mortgage Term: 15yr (2031 payoff)
Original Mortgage Balance: $86,250
Current mortgage balance: 61,000
APR: 3.123%
Total Monthly Payment: $1036.14

Desired Cash out: $100,000
New Mortgage Balance: $161,000

15 Year New APR: 2.364%
15 year New Total monthly payment: $1412.00 (Taxes & Insurance Included)

30 Year New APR: 2.644%
30 year new monthly payment: $1013.00 (Taxes & Insurance Included)

[marty998]

It depends on what you are buying. But also these numbers are so small in the grand scheme of things that if $400 a month difference between 15 and 30 year terms is a deal breaker then you probably shouldn’t be looking at real estate at all.

Over here in Oz it is important not to mix home and investment loans so that the tax deductions on loan interest can be maintained, so that might be another consideration.

I fall into the camp of pay the minimum, and then pay whatever is required to restructure your situation so you can move onto the next investment. So the actual payments don’t really matter to me... the situation changes each year depending on what the next goal is.

Always be thinking an asset or two ahead of where you are.

[waltworks]

What's the total value of the property?

-W

[frogstomp81]

$220,000 is the current value of the property.

[clarkfan1979]

Both loans look great. The 15-year loan might hurt your debt to income which could potentially slow your growth. A mortgage for your primary is going to be on the debt side. A mortgage for a rental is different. Assuming the rent is higher than the mortgage and repairs, the net profit is on the income side.

In my opinion, the more important aspect would be your cash cushion for your first rental. If you buy a 200K single family home rental, I would want my cash cushion to be 15K, after all initial repairs. For your first rental, try to buy something with minimal rehab to avoid costly repairs eliminating your cash cushion. Once you get better at estimating repairs, you can get better deals that need more rehab.

[PMJL34]

Like Marty said,

What are you going to buy? That is the ultimate answer to your question.

If you can buy a great rental then yes, do it. If can't, don't do it.

We would also need to know that you have sufficient income level and overall networth so that this doesn't become a stressful event for you.

Best of luck!

[Aegishjalmur]

I'm looking into doing a cash out refi on my primary residence to fund real estate investment. Based on the numbers below I think it would make sense assuming any reasonable return on a rental property. How would you approach this calculation?

Current Mortgage Term: 15yr (2031 payoff)
Original Mortgage Balance: $86,250
Current mortgage balance: 61,000
APR: 3.123%
Total Monthly Payment: $1036.14

Desired Cash out: $100,000
New Mortgage Balance: $161,000

15 Year New APR: 2.364%
15 year New Total monthly payment: $1412.00 (Taxes & Insurance Included)

30 Year New APR: 2.644%
30 year new monthly payment: $1013.00 (Taxes & Insurance Included)

I don't see closing costs addressed, so if you roll them in, you'll get a bit less than $100K, or if you raise the loan amount to cover the cc's plus get the full $100K, the payments will be a little higher.

[Dicey]

Have you done the legwork on the potential rental? This is a rough time to make the numbers work in a lot of markets. The wisdom is you make money twice in Real Estate, when you buy and when you sell. Do not let this re-fi money burn a hole in your pocket.

[CarolinaGirl]

I just did a cash out refi in September.  For what it’s worth, one of the questions I had to attest to was that I wouldn’t use the proceeds for investments OR to purchase other property.  They even draft legal documents to gain access to your accounts to monitor your transactions for a given period of time.