Author Topic: rental cashout refi  (Read 1763 times)

hoping2retire35

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rental cashout refi
« on: December 15, 2015, 03:07:23 PM »
at some point I will pay off my rental unit or get the balance pretty low and then I need to decide what to do with the equity. Could just save up cash for some combination of the following options, just trying to provide context. My question, which really covers many aspects, is what is the best practice for making the most of the situation. From what I have studied it seems most commercial loans are 12-15 year terms at decent rates with 80% L2V or a 10 year term loan amortized at 30 years with a balloon payment,which seems crazy and ridiculous to me. I realized that people must refinance after the initial term or have saved the balloon payment. The more logical option is once again to refinance 10 years or so and amortized 20-30 years.

So going the 10year term amortized:
1) is refiancing difficult(assuming you are a good landlord, records, occupancy, etc), what if you are FIRE'd and only show 20-30k HH income?

2) if rates change how does this effect the refinance payment? I guess if you are not trying to get money out and just continuing to pay down then your payment would keep going down(assuming you amortized again for 30 years).

I'm sure biggerpockets has something about this, but i don't like their forum format and can't find the search tool that will work within the forum subsection. Anyways, I would rather just hear someone personal story of how they did this.

Zoot Allures

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Re: rental cashout refi
« Reply #1 on: December 15, 2015, 06:17:12 PM »
I'm not sure I understand what you're saying about your loan options, particularly the part about how your payment "would keep going down" after refinancing. So I'll just offer two more possibilities, as I'm considering a similar question of what to do with the equity in my rental house. In 5 years, around the time I hope to quit my job, I'll have about $200K equity in my rental.

One option is to do a 1031 exchange and trade up to something larger, like a multifamily investment property.

Another option is to move back into my rental (it was formerly my principal residence) for two years, which will allow me to sell it while avoiding the capital gains tax. I could then just dump the $200K profit into my stash.

A third option would be to just keep it as a rental, but then it would take an additional 10 years before I owned it free and clear. I could do a cash-out refi at some point and buy another investment property. I guess it comes down to how lucrative each option is likely to be and how much work I feel like doing.

hoping2retire35

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Re: rental cashout refi
« Reply #2 on: December 17, 2015, 06:35:24 AM »
I'm not sure I understand what you're saying about your loan options, particularly the part about how your payment "would keep going down" after refinancing. So I'll just offer two more possibilities, as I'm considering a similar question of what to do with the equity in my rental house. In 5 years, around the time I hope to quit my job, I'll have about $200K equity in my rental.

One option is to do a 1031 exchange and trade up to something larger, like a multifamily investment property.

Another option is to move back into my rental (it was formerly my principal residence) for two years, which will allow me to sell it while avoiding the capital gains tax. I could then just dump the $200K profit into my stash.

A third option would be to just keep it as a rental, but then it would take an additional 10 years before I owned it free and clear. I could do a cash-out refi at some point and buy another investment property. I guess it comes down to how lucrative each option is likely to be and how much work I feel like doing.

What I meant was in
"2) if rates change how does this effect the refinance payment? I guess if you are not trying to get money out and just continuing to pay down then your payment would keep going down(assuming you amortized again for 30 years)."
after you have paid on a property, assuming not interest only amortized loan, then the total loan amount would decrees and if you did a loan similiar to the one before then you payment should also go down.

As far as your other questions for your situations it kinda depends "I guess it comes down to how lucrative each option is likely to be and how much work I feel like doing." lots of factors. will you property continue to appreciate, will multifamily appreciate and rents rise, is there another area/development where places are cheaper but it will rise(cash-out refi?)?. lots of things to consider.

zephyr911

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Re: rental cashout refi
« Reply #3 on: December 17, 2015, 06:59:21 AM »
So going the 10year term amortized:
1) is refiancing difficult(assuming you are a good landlord, records, occupancy, etc), what if you are FIRE'd and only show 20-30k HH income?
Rental refi qualification should be primarily based on the financials of the property itself. Guidelines vary but they'll want to see that it's producing enough income to pay the loan, after expenses, with some margin for error. Our commercial mortgage payments are only 40-50% of the monthly rent, which allows us to pay taxes, insurance, maintenance, etc, pay the mortgage, and still stash some reserves. That's what they want to see. If your numbers don't support that, they'll look a little harder at your other income to ensure you can sustain the property if it goes vacant or needs big repairs.
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2) if rates change how does this effect the refinance payment?
If rates go up, refinancing could make your payment go up. It depends how much you've paid it down by then. IOW, if you still have 90% of the original balance, adding 1% could mean paying more... if you've paid off 80% of it, even a big rate increase could still mean a lower payment as you stretch out the amortization.
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I guess if you are not trying to get money out and just continuing to pay down then your payment would keep going down(assuming you amortized again for 30 years).
Yeah, what you said.

hoping2retire35

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Re: rental cashout refi
« Reply #4 on: December 17, 2015, 12:52:57 PM »
thanks for the answers zephyr.

Did anyone try to get the amortized loans with balloon payments in 2008-2009 time period? How difficult was it, assuming you are not a mini-trump real estate baller but more a regular income $40-70k(just saying if you reply "easy, no problem" please provide some info of your NW, RE portfolio, link to journal, etc)?

I guess what I see on the horizon is higher interest rates, but possibly also a bond market decline/crash so things could change/become difficult/weird (haven't read enough to be 'sure' but kinda what i suspect). I really do not want to have a balloon payment due and not be able to get that refinance loan due to outside circumstances.