Closing in a few hours on two refinances. (3.952% for 30yrs) Pulling over $120k out and the properties will still cashflow nicely. Looking to reinvest in a few more deals now. I love real estate!
@@fernandomonserrat1029 yes you still own it and can cash flow from it monthly! But your cash flow on that house may decrease a bit because your pulling out equity to 1031-it to another property and hopefully cashflow that one!
Very simplistic and well done. I bought my first 4 plex a year ago $285k, dumped $100k-ish into it and now I'm refinancing getting the $100k back out to reinvest.
@@shahrukhpenker8860 You can only take out a certain percentage of equity or you may not want to take out the full amount because it could disrupt cashflow
But reinvest plus takinng out cash are two loans… combined its too much of morgage payments right? What happens if you there is 4month vacancy and you need to pay all those loans every month
I'm doing a cash out refi on my personal home right now. Going to eliminate my wifes $1272 school payment, and our mortgage is only going up $75. AKA $1200 of extra income a month to save/invest. We've owned our house for 3 years but had a lot of appreciation.
Very good video. You are correct that refinance is not for everyone. My team is talking to hundreds of people each month and for many we advise to stay put. Cheers!
I am curious to see if this is done on your primary residence that you plan to continue living in. My guess is aside from the higher mortgage payment , you can still do this pull the cash out and use that to buy a secondary property ?
Check with a lender for an estimate, if your original mortgage was many years ago, chances are your rates would be fantastic and your new mortgage payment could be equal or slightly higher payment - but remember the term has reset and you will be paying for x number of years longer. Yes, you can do this with a current investment property OR your own home.
These numbers are pretty rosy. I understand this is for educational purposes, but a $300k property cash flowing $15k in year 1, plus a refi that increases your mortgage payment while only reducing cash flow by $2k. Good formulas, but people should be sure that rents can cover the new mortgage payment. Otherwise a cash out refi= mortgage crisis
I'm about to do this with one of my properties and the numbers work - look at the interest rates today compared to 5 years ago. The cash flow will absolutely still be there. It may be 1.75 % lower than his original mortgage.
yes, I have several SFR in a high priced area of the country. Have done great on equity and have averaged 45% equity now, but ROE only 3-4% now. Ouch. cash flow is also low so if I pull out too much, my cash flow will go negative. The even bigger issue is that I don’t know where I would invest the extra cash right now. Buying homes is so difficult now (I have tried) - with multiple offers on everything no one knows what the real price is. Considering partnering on property development as clearly there is a high need for more homes.
@@cwr8618 true i learned my lesson plus I discovered your podcast and similar others and reading and learning ...in 6 months I will be in position to get my first rental property...
What do you think about using CAGR to determine when to sell/refinance? For example, CAGR may be 2% in year 1, then top out at 30% in year 5 before beginning to decrease. Wouldn't this mean that year 5 could be the ideal time to search for a new property or refinance?
BOOM goes the dynamite!! A first heard and exactly a strategy that will help me in the way I was thinking about using the recent boost in equity! Thanks!
Where will you get the 100K downpayment for the cashout refi? Is it from the earned cashflow over the 5 years or is it another out of pocket? Open to learning. Thanks!
Great work on the white board presentation working out the number would love more deal options scenerio we can apply in today world where it’s hard to buy property with equity built or needing more down payment cash as property value has gone high
This is a metric I had not heard of below - the RoE. Fascinating! Took notes and will use when it comes time to think about refinancing on my rental. Question: what is a good RoE in your opinion? My first rental on day one is no where near 25% / 15000 cash flow....
Great video thank you... albeit. I wish I could find these numbers today. With interest rates increasing, its going to be increasingly difficult to pull off these refinances
@@biggerpockets I agree!! I'm talking about 5 years down the road if interest rates creep into the 5's and 6's, why would you refinance if you have a 3?... who knows whats going to happen.
Thank you this video was a very helpful and insightful. It confirmed that it was a good idea for me to start a cash out refi for my investment condo. My goal is to use the cash you buy another investment property.
I think this is another excellent strategy, but probably some pros and cons of either method - if HELOC, you keep the original terms on the 1st mortgage, not extending the end date + pay down the HELOC and rinse and repeat again for another property - however with a cash out refinance, you take advantage of today's lower rates with much improved cash flow, but of course you are resetting your 15/30 year term - that should keep or improve cash flow. With the HELOC the cash flow gets greatly reduced.
How do you qualify for your rental property home equity with good credit and low paying job. Renters cover rent now and would cover with refinance cash out?
Your example assumes the investor initially obtains a 15 year mortgage to achieve a loan balance of about 220K after 5 years. The numbers don't work as well with a long term 30 year mortgage. With a 30 year mortgage, the loan balance would be approximately 271K after 5 years. That's a 51K difference! 51K less means the equity is 129K instead of 180K. Therefore, doing a Cash-Out-REFI after 5 years may not necessarily be a good idea.
Great video, I am curious. With refinance you have to put 25% down in order to obtain 75 percent of your homes equity? In your example, when time to refinance 100k was put down and in returned received 80k in cash to purchase new property, plus you have rehab costs as well? I probably missed something wouldn't you use the 100k down payment to purchase new property straight out and rehab instead of refinance? Thanks for the help?
There’s no rehab here! You had $180k in equity, you leave $100k in for the refinance, and the $80k is what you pull out. You can do whatever you want with the $80k, hopefully reinvest it into a new property!
I'm now doing a cash out refi via Fanny/Freddy. Yes. I can only take out 75% of its value, as the bank evaluated it. Often people say you can take out 80%. This is incorrect.
yes, and this is a huge advantage to cash out refi, because in reality if you sold the property your equity would be reduced by taxes (of course, you could avoid it with 1031 exchange, but with homes so difficult to buy right now, I think the requirement to get a new home under contract within 45 days of selling the old would be tough to pull off!)
I understand now! so if I'm living in a house with 200k equity my ROE is 0!? But if cash out refi we'll get roughly 75% of that 200k to reinvest into another property correct?
"Cash flow"... in this example is that net cash flow or just how much it rents for? 15k dollars net cash flow would be over 1k per month, in year 1... seems unrealistic? Just trying to understand so I can run the #s on mine
HELOC. You technically would carry no mortgage just pay off on what you use like you would a credit card. Plus whatever limit you get approved for is yours to reuse until the end of terms on that LOC. Again as long as you pay it off (or down). Say you get $80k HELOC…that $80k is always available as long as you pay it down to use versus a cash out that can only be used once in one transaction unless you do another refi or BRRR…that $80k is yours to reuse without having to go through the refi process all over again
Need a bit of clarity. Everything Dave said makes sense but it seems to ignore the fact that with each new property you have a new mortgage which will likely be higher than the previous one and cuts into the cash after expenses. I'm sure I'm missing something, open to learning.
Nice video, I was just considering this topic and talking with some lenders. I have most of my assets paid off, which is epic for rental income, but I do want to pull some equity and scope out some more deals. I was thinking an open line of credit on the $2.5M in equity I have would be ideal, then I’m not paying interest waiting on a deal to pop up or be found. I want to deploy the capital only when needed. Anyone have suggestion for banks willing to do open line of credit on real estate portfolios, they would have first position.
If you're in FL, I can pass you to a bank. I'm thinking the same thing and have moved somewhat forward in having my LLC's Financial Statements ready for a $300k LOC. However, I'm also buying two properties back to back thru Dec so I want to hold off on the LOC until those clear. I am concerned about impact of a LOC in my Financial Statements on the ability to get a conventional mortgage. Not sure if a bank is going to add the LOC to my Debt to Income ratio since the LOC is collateralized by my equity. I'm retiring in the next five years so I like to keep my ratio very low while building cash flow over that period. Now I'm using cash flow to buy assets. Then, I plan to use the assets to live on.
@@markstevenson8191 please do. I don’t think an open line of credit will have a negative effect as long as it’s a zero balance, similar to a credit card 💳. Appreciate the contacts
Bought a house last year for 550k with 15% down. House is now worth over 700k. Is it smart to cash out refi to buy another property and if so how much should I pull out?
With no disrespect - if you bought a 550K house with 15% down, you may have stretched your income if you didn't pay with 20% down. Would you say that your annual income and/or FICO score improved drastically to be able to afford a newly refinanced 560K mortgage (80% of 700K). You're probably paying PMI too from that original mortgage if you were originally under 20% down. With that said you should check your mortgage that you no longer should be paying PMI because you certainly have more than 20% in equity after appreciation now - I don't know that mortgage companies remove that right away. IF your income/FICO has improved, then by all means run the numbers with a lender to see that you can afford a 560K mortgage and you could probably get ~$90K in equity for down payment on a new investment property.
What if you refinance into a house hack? So refinancing into a owner occupied conventional loan. You would be able to refinance 95% LTV and capture more equity + lower interest rate since it’s a owner occupied loan. Is that possible?
Ok help me out here... trying to wrap my mind around this. I'm going to create less cash flow on one property to buy another, that will likely cash flow similarly to the one I just refinanced. So I'll have two properties that cash flow marginally better than the one house before the refinance so now I have 2 tenants to deal with and twice the cap x expenses I don't see a real world benefit. Let me know if I'm completely lost 😆
I've done this with a duplex 5 years ago, cash out refinanced at better rates, then bought 2 properties with that built up equity - initially it feels like you're robbing Peter to pay Paul - but the mortgage companies won't lend unless they see that the numbers work. Rental investments have quadruple threats - cash flow, mortgage pay down (by your tenants), appreciation & tax depreciation - not to mention rental increases of min 3% per year. Those rental increases snowball - after 5 years, its 15% higher... Now I'm ready to rinse and repeat and may get 4 more properties in the next year.
I'm in a similar position. I have 17 units that all heavily cash flow with rates as low as 3.5% 30y fixed. I have built equity up over the last 10 years. I was able to get most of the loans by investing time ownee occupying the units. So no chance to get those conventional loans again..
@@arr0gant1 I’m guessing the key is that you refinance to a lower rate and then it makes sense. but even if you refi to the same rate I almost think the headache isn’t worth it, but I am pretty new to being a landlord so maybe with time and more knowledge it’ll make sense then.
in usa 30 year loans at fixed rates.. some of the cash out is tax free "income " because its not income but a loan. other parts of the cash out can buy more property. if rates and other costs are lower than rental yield it works
People take advantage of refinancing for different reasons - for a plain refinance (without taking equity out), you usually want to change from a 30 to 15 year term and/or interest rates have greatly decreased since your original mortgage - this can result in hundreds of dollars of savings per month. However this kicks the can down the road if you get a new 30 year mortgage that resets your terms - albeit with a much lesser monthly payment. A cash out refinance as explained in this video takes advantage of rising appreciation of a property and uses that 'dead' money to its best advantage. If numbers work out right, you will still have an affordable 1st mortgage and a new investment property with tenants paying for the new mortgage + some added cash flow. This is the age old way most real estate investors make their money - rinse and repeat to build and grow your real estate empire. IF NOT INVESTING, most others cash out refinance to either pay credit card debt, student loans, fix up a house - not necessarily the best use of equity as you'll likely will be resetting your loan end date.
best reason to do a cash out refi is to buy another stable investment like a rental. I think in many cases you can end up with higher total cash flow from old and new properties combined, and your future equity on two properties will build faster than on one (two renters paying down your loans, two homes going up in value). Only risk is if you use a variable rate loan or if home prices and rents fall (unlikely in the next few years).
You do of course end up with twice the work and headache and maintenance when you double your number of properties. Whatever IRS guy labeled rentals as passive income clearly never owned one ;-)
Sorry, but makes no sense. Assume you purchase a $300K house, 240K mortgage @ 2.5%. Where I'm at in Arizona, houses in that range rent for say $1,500. Expenses are mortgage ($950), Taxes ($150) and Ins ($45). This gives a cash flow of $207. Make it $200 cash flow/month, or $2,400 a year, no where near $15,000 as you presented. And this assumes no repairs or other expenses. By this, ROE is $2,400/$60,000 (by your numbers) which is 4% ----- no where near 25% that you give. The only way to get your number of 25% is if rents were $2650 monthly, with everything else equal. That number is not possible. Also, numbers in Arizona are way better than much of California, New York, and other areas of the country. Were my numbers not correct?
Yeah here in Ohio, a 300k house rents for about 2k per month so the cash flow is slightly better. I haven’t seen rents for 3000 unless the houses are more expensive like closer to 500k, and at that point the payment including taxes and insurance would get pretty expensive.
Oops. Sorry but tired when I posted this. A slight error. I forgot to add in 10% management fees. This makes on $1500 rental income expenses of mortgage ($950), Taxes ($150) Ins ($45) and Mgt fee $150 makes $1295 in expenses and cash flow of $205. Also, if you're in a Condo / Townhouse, HOA fees are from $150 to $250/month, which makes it a wash. That said, I think I could now get $1,650 since rents have gone up so much past year. If you calculate $2650 rent (on a $300,000 unit), only then can you get 25% ROE, which, as said is not possible. At least I've never heard of those numbers nowadays.
@@biggerpockets I've seen first hand people who took money out of personal homes and rental homes, they lost everything. Look at Dave Ramsey's story. I've been doing real estate since 1995 so I know a thing or two. It's good tax free money, but when the market sours you might be in really bad shape.
How are you getting cash flow of 15K in first year and then 20K in 5 th year?? Do you really have a rental property :) probably not … if you have you will know the pain and how can any one get 15K cash flow that too on a 300K property… it’s a nonsense. Hypothetically Any one can say 100 things but in reality that won’t happen . Sad.
He has multiple rental properties lol but he explained in another comment it was just to make the calculations easier. I agree it’s not realistic anywhere that I know of.
Closing in a few hours on two refinances. (3.952% for 30yrs) Pulling over $120k out and the properties will still cashflow nicely. Looking to reinvest in a few more deals now. I love real estate!
Question : if I buy a home
Rehab it
Rent it then cash out refinance
Do I still own the property and collect the rent ?
@@fernandomonserrat1029 BiggerPockets Podcast #442 here on UA-cam @ 24:17 Bryce Stewart explains it perfectly.
@@davidc8560 thank you buddy
@@fernandomonserrat1029 yes you still own it and can cash flow from it monthly! But your cash flow on that house may decrease a bit because your pulling out equity to 1031-it to another property and hopefully cashflow that one!
@@joshuazayas1040 you’re a legend that’s exactly what I wanted to know because that would be the strategy cash out for other properties
Very simplistic and well done. I bought my first 4 plex a year ago $285k, dumped $100k-ish into it and now I'm refinancing getting the $100k back out to reinvest.
The 4 plex didn't appraise in value at all after renovations?
@@shahrukhpenker8860 You can only take out a certain percentage of equity or you may not want to take out the full amount because it could disrupt cashflow
But reinvest plus takinng out cash are two loans… combined its too much of morgage payments right? What happens if you there is 4month vacancy and you need to pay all those loans every month
I'm doing a cash out refi on my personal home right now. Going to eliminate my wifes $1272 school payment, and our mortgage is only going up $75. AKA $1200 of extra income a month to save/invest. We've owned our house for 3 years but had a lot of appreciation.
One of the better explainer videos I have seen on this topic. Nice flow through the math. Thanks!
Love you Dave. Always short and too the point. Love the whiteboard style
Thanks for explaining a cash-out refi in a clean way. It was helpful for a newbie like me 👍
Very good video. You are correct that refinance is not for everyone. My team is talking to hundreds of people each month and for many we advise to stay put. Cheers!
This format is outstanding 😄
Absolutely loved this, and you should definitely be doing more of these white board presentations; thank you! 🙌🏼🙏🏼
Thanks Tomek!! I’ll do some more like this
@@biggerpockets What happens if you refinance in an LLC then move the finance into your personal name?
I am curious to see if this is done on your primary residence that you plan to continue living in. My guess is aside from the higher mortgage payment , you can still do this pull the cash out and use that to buy a secondary property ?
That is exactly what we are doing.
Check with a lender for an estimate, if your original mortgage was many years ago, chances are your rates would be fantastic and your new mortgage payment could be equal or slightly higher payment - but remember the term has reset and you will be paying for x number of years longer. Yes, you can do this with a current investment property OR your own home.
Don’t forget to use closing costs for that new loan.
Love the simple explanation on ROE!!
This dudes delivery is great.
Thanks!
I like this format
I was literally just thinking about this last night. Perfect timing!
These numbers are pretty rosy. I understand this is for educational purposes, but a $300k property cash flowing $15k in year 1, plus a refi that increases your mortgage payment while only reducing cash flow by $2k. Good formulas, but people should be sure that rents can cover the new mortgage payment. Otherwise a cash out refi= mortgage crisis
Agree
I'm about to do this with one of my properties and the numbers work - look at the interest rates today compared to 5 years ago. The cash flow will absolutely still be there. It may be 1.75 % lower than his original mortgage.
I just picked numbers that were easy to calculate and for people to understand, it’s not a real deal.
Banks do a rent schedule anyway on what it can rent for and what the current lease is. How do I know this 🤔
yes, I have several SFR in a high priced area of the country. Have done great on equity and have averaged 45% equity now, but ROE only 3-4% now. Ouch. cash flow is also low so if I pull out too much, my cash flow will go negative. The even bigger issue is that I don’t know where I would invest the extra cash right now. Buying homes is so difficult now (I have tried) - with multiple offers on everything no one knows what the real price is. Considering partnering on property development as clearly there is a high need for more homes.
I refinanced with cash out used the 💰 and paid off all my credit cards , car , loan... So happy so far
Just don’t fall into the same pattern. Using your equity to cover bad decisions from the past. It also prevents that money from growing
@@cwr8618 true i learned my lesson plus I discovered your podcast and similar others and reading and learning ...in 6 months I will be in position to get my first rental property...
Very insight. Thanks. Yes, using the white board is awesome. Keep em coming!
Loved the whiteboard!
Closed on my refi last month. My calculations were different, but this is a great way to thing about it.
What do you think about using CAGR to determine when to sell/refinance? For example, CAGR may be 2% in year 1, then top out at 30% in year 5 before beginning to decrease.
Wouldn't this mean that year 5 could be the ideal time to search for a new property or refinance?
This is OUTSTANDING info
BOOM goes the dynamite!! A first heard and exactly a strategy that will help me in the way I was thinking about using the recent boost in equity! Thanks!
white was helpful. awesome i understand refinancing more now than before!
Great video
Got lots of value from this video 😊
Great explanation of ROE! Thx
Thank you for good information.
Do you include closing costs in equity when you calculate ROE?
Helpful video. Thanks for doing it
Keep doing these please
Awesome Dave! Thanks so much for that info!
You’re welcome!!
can i do every step of cash out refi via a DSCR loan?
Where will you get the 100K downpayment for the cashout refi? Is it from the earned cashflow over the 5 years or is it another out of pocket? Open to learning. Thanks!
Great presentation very helpful
Great work on the white board presentation working out the number would love more deal options scenerio we can apply in today world where it’s hard to buy property with equity built or needing more down payment cash as property value has gone high
This is a metric I had not heard of below - the RoE. Fascinating! Took notes and will use when it comes time to think about refinancing on my rental. Question: what is a good RoE in your opinion? My first rental on day one is no where near 25% / 15000 cash flow....
Nicely done
Great video thank you... albeit. I wish I could find these numbers today. With interest rates increasing, its going to be increasingly difficult to pull off these refinances
They haven't gone up yet! Still some time to get it done.
@@biggerpockets I agree!! I'm talking about 5 years down the road if interest rates creep into the 5's and 6's, why would you refinance if you have a 3?... who knows whats going to happen.
Excellent information, Dave! Thank you so much! 👍
Principles in this video are nice but the example of lets just say a 300k property nets you 1250 cash flow per month is a bit of a stretch.
is the cash flow levered (net of int + prnincipal) or unlevered?
Thank you this video was a very helpful and insightful. It confirmed that it was a good idea for me to start a cash out refi for my investment condo. My goal is to use the cash you buy another investment property.
Great video thanks
Love the whiteboard! What product/tool did you use, looking to buy one as well for my day job.
Miro or Mural
Very helpful, but i was wondering on closing cost and other miscellaneous expenses that incurs
This is a really excellent video! Thanks for making this!
This format is perfect! 👍
Excellent video! Keep it coming!
I choose to do a rate and term refinance. And access the money via a HELOC. Thoughts?
I think this is another excellent strategy, but probably some pros and cons of either method - if HELOC, you keep the original terms on the 1st mortgage, not extending the end date + pay down the HELOC and rinse and repeat again for another property - however with a cash out refinance, you take advantage of today's lower rates with much improved cash flow, but of course you are resetting your 15/30 year term - that should keep or improve cash flow. With the HELOC the cash flow gets greatly reduced.
This is awesome - thanks!
You’re a legend mate!
good breakdown
Legend video.
The better question is what/where do you invest the equity?
Excellent video! Thanks
Are you counting cash flows as the gross from rent pmts or is that of paying mortgage, and HOAs etc.?
Cash flow is net cash profit after expenses and principal are paid
How do you qualify for your rental property home equity with good credit and low paying job. Renters cover rent now and would cover with refinance cash out?
Good breakdown, keep them coming.
what's up with the music choice in the beginning? It's ominous and sad....
Your example assumes the investor initially obtains a 15 year mortgage to achieve a loan balance of about 220K after 5 years. The numbers don't work as well with a long term 30 year mortgage. With a 30 year mortgage, the loan balance would be approximately 271K after 5 years. That's a 51K difference! 51K less means the equity is 129K instead of 180K. Therefore, doing a Cash-Out-REFI after 5 years may not necessarily be a good idea.
Great video, I am curious. With refinance you have to put 25% down in order to obtain 75 percent of your homes equity? In your example, when time to refinance 100k was put down and in returned received 80k in cash to purchase new property, plus you have rehab costs as well? I probably missed something wouldn't you use the 100k down payment to purchase new property straight out and rehab instead of refinance? Thanks for the help?
There’s no rehab here! You had $180k in equity, you leave $100k in for the refinance, and the $80k is what you pull out. You can do whatever you want with the $80k, hopefully reinvest it into a new property!
I'm now doing a cash out refi via Fanny/Freddy. Yes. I can only take out 75% of its value, as the bank evaluated it. Often people say you can take out 80%. This is incorrect.
@@biggerpockets Thanks 😊
how does the increased mortgage payment get calculated into reduced cashflow?
This is good stuff. How is that $80k equity being pulled out taxed?
Equity from a HELOC or cash out refinance is not taxed as earned income at all :)
Since the $80k in equity is given via a loan, it is non-taxable. It’s a loan, not income.
yes, and this is a huge advantage to cash out refi, because in reality if you sold the property your equity would be reduced by taxes (of course, you could avoid it with 1031 exchange, but with homes so difficult to buy right now, I think the requirement to get a new home under contract within 45 days of selling the old would be tough to pull off!)
I understand now!
so if I'm living in a house with 200k equity my ROE is 0!? But if cash out refi we'll get roughly 75% of that 200k to reinvest into another property correct?
Yes that’s right! If you’re occupying a house and not generating any cashflow on it your roe is 0
This format is awesome!!
Thanks!!!
"Cash flow"... in this example is that net cash flow or just how much it rents for? 15k dollars net cash flow would be over 1k per month, in year 1... seems unrealistic? Just trying to understand so I can run the #s on mine
Does bank ask what your doing with the cash out Refinance? Should I say investment?
Not their concern!
Ok, can I get a cash out refinance on an investment property that I own free and clear? Or would it be better to get a HELOC on that property instead?
HELOC. You technically would carry no mortgage just pay off on what you use like you would a credit card. Plus whatever limit you get approved for is yours to reuse until the end of terms on that LOC. Again as long as you pay it off (or down). Say you get $80k HELOC…that $80k is always available as long as you pay it down to use versus a cash out that can only be used once in one transaction unless you do another refi or BRRR…that $80k is yours to reuse without having to go through the refi process all over again
Silly question, is cash flow gross or net?
Not a silly question, an important one! Cashflow is net. Take your gross income then subtract all of your expenses - that’ll give you cashflow.
@@biggerpockets thank you
Need a bit of clarity. Everything Dave said makes sense but it seems to ignore the fact that with each new property you have a new mortgage which will likely be higher than the previous one and cuts into the cash after expenses. I'm sure I'm missing something, open to learning.
Nice video, I was just considering this topic and talking with some lenders. I have most of my assets paid off, which is epic for rental income, but I do want to pull some equity and scope out some more deals. I was thinking an open line of credit on the $2.5M in equity I have would be ideal, then I’m not paying interest waiting on a deal to pop up or be found. I want to deploy the capital only when needed. Anyone have suggestion for banks willing to do open line of credit on real estate portfolios, they would have first position.
If you're in FL, I can pass you to a bank. I'm thinking the same thing and have moved somewhat forward in having my LLC's Financial Statements ready for a $300k LOC. However, I'm also buying two properties back to back thru Dec so I want to hold off on the LOC until those clear. I am concerned about impact of a LOC in my Financial Statements on the ability to get a conventional mortgage. Not sure if a bank is going to add the LOC to my Debt to Income ratio since the LOC is collateralized by my equity. I'm retiring in the next five years so I like to keep my ratio very low while building cash flow over that period. Now I'm using cash flow to buy assets. Then, I plan to use the assets to live on.
@@markstevenson8191 please do. I don’t think an open line of credit will have a negative effect as long as it’s a zero balance, similar to a credit card 💳. Appreciate the contacts
@@christopherjamesrussell Her you go:
Arrg....UA-cam, this numbers are P, C, F
@@markstevenson8191 which bank does it in fl?
Whiteboard feature was cool.
Who would I talk to in order to get a cash out refinance loan? Names of lenders.
What if I cash out refinance to make a bigger down payment on a new house for my wife and I instead of buying another rental.?
Bought a house last year for 550k with 15% down. House is now worth over 700k. Is it smart to cash out refi to buy another property and if so how much should I pull out?
With no disrespect - if you bought a 550K house with 15% down, you may have stretched your income if you didn't pay with 20% down. Would you say that your annual income and/or FICO score improved drastically to be able to afford a newly refinanced 560K mortgage (80% of 700K). You're probably paying PMI too from that original mortgage if you were originally under 20% down. With that said you should check your mortgage that you no longer should be paying PMI because you certainly have more than 20% in equity after appreciation now - I don't know that mortgage companies remove that right away. IF your income/FICO has improved, then by all means run the numbers with a lender to see that you can afford a 560K mortgage and you could probably get ~$90K in equity for down payment on a new investment property.
What if you refinance into a house hack? So refinancing into a owner occupied conventional loan. You would be able to refinance 95% LTV and capture more equity + lower interest rate since it’s a owner occupied loan. Is that possible?
Sure, why not. Just adjust the calculations for 5% equity.
Ok help me out here... trying to wrap my mind around this. I'm going to create less cash flow on one property to buy another, that will likely cash flow similarly to the one I just refinanced. So I'll have two properties that cash flow marginally better than the one house before the refinance so now I have 2 tenants to deal with and twice the cap x expenses I don't see a real world benefit. Let me know if I'm completely lost 😆
I've done this with a duplex 5 years ago, cash out refinanced at better rates, then bought 2 properties with that built up equity - initially it feels like you're robbing Peter to pay Paul - but the mortgage companies won't lend unless they see that the numbers work. Rental investments have quadruple threats - cash flow, mortgage pay down (by your tenants), appreciation & tax depreciation - not to mention rental increases of min 3% per year. Those rental increases snowball - after 5 years, its 15% higher... Now I'm ready to rinse and repeat and may get 4 more properties in the next year.
We’ll said! I’ll add that the cashflow doesn’t have to be marginally better. You’ll probably increase cashflow considerably if you do it right.
I'm in a similar position. I have 17 units that all heavily cash flow with rates as low as 3.5% 30y fixed. I have built equity up over the last 10 years. I was able to get most of the loans by investing time ownee occupying the units. So no chance to get those conventional loans again..
@@arr0gant1 I’m guessing the key is that you refinance to a lower rate and then it makes sense. but even if you refi to the same rate I almost think the headache isn’t worth it, but I am pretty new to being a landlord so maybe with time and more knowledge it’ll make sense then.
@@surviveitforbeginner I can't get anywhere near the same terms. I owner-occupied to get conventional loans. I'd have to refi most into ARM's.
Seems like a lesson on how to always maximize your debt. That works, until it doesn't.
Just gotta know when to pump the brakes
in usa 30 year loans at fixed rates.. some of the cash out is tax free "income " because its not income but a loan.
other parts of the cash out can buy more property. if rates and other costs are lower than rental yield it works
As long as you can service the debt with cashflow it shouldn’t be a problem.
Too risky for me
@@monicarenee7949 all you're doing is reinvesting your money. This is how real estate investors continue to grow their wealth.
Why do we refinance the house? I’m still confused on refinancing
People take advantage of refinancing for different reasons - for a plain refinance (without taking equity out), you usually want to change from a 30 to 15 year term and/or interest rates have greatly decreased since your original mortgage - this can result in hundreds of dollars of savings per month. However this kicks the can down the road if you get a new 30 year mortgage that resets your terms - albeit with a much lesser monthly payment. A cash out refinance as explained in this video takes advantage of rising appreciation of a property and uses that 'dead' money to its best advantage. If numbers work out right, you will still have an affordable 1st mortgage and a new investment property with tenants paying for the new mortgage + some added cash flow. This is the age old way most real estate investors make their money - rinse and repeat to build and grow your real estate empire. IF NOT INVESTING, most others cash out refinance to either pay credit card debt, student loans, fix up a house - not necessarily the best use of equity as you'll likely will be resetting your loan end date.
best reason to do a cash out refi is to buy another stable investment like a rental. I think in many cases you can end up with higher total cash flow from old and new properties combined, and your future equity on two properties will build faster than on one (two renters paying down your loans, two homes going up in value). Only risk is if you use a variable rate loan or if home prices and rents fall (unlikely in the next few years).
You do of course end up with twice the work and headache and maintenance when you double your number of properties. Whatever IRS guy labeled rentals as passive income clearly never owned one ;-)
Sorry, but makes no sense. Assume you purchase a $300K house, 240K mortgage @ 2.5%. Where I'm at in Arizona, houses in that range rent for say $1,500. Expenses are mortgage ($950), Taxes ($150) and Ins ($45). This gives a cash flow of $207. Make it $200 cash flow/month, or $2,400 a year, no where near $15,000 as you presented. And this assumes no repairs or other expenses. By this, ROE is $2,400/$60,000 (by your numbers) which is 4% ----- no where near 25% that you give. The only way to get your number of 25% is if rents were $2650 monthly, with everything else equal. That number is not possible. Also, numbers in Arizona are way better than much of California, New York, and other areas of the country.
Were my numbers not correct?
Your numbers are correct. But Arizona just doesn’t fetch the rent amounts that you would get elsewhere.
Yeah here in Ohio, a 300k house rents for about 2k per month so the cash flow is slightly better. I haven’t seen rents for 3000 unless the houses are more expensive like closer to 500k, and at that point the payment including taxes and insurance would get pretty expensive.
Hey all thanks for the feedback. The video is just meant to teach how to run the calculations -- its not based on an actual deal.
Oops. Sorry but tired when I posted this. A slight error.
I forgot to add in 10% management fees. This makes on $1500 rental income expenses of mortgage ($950), Taxes ($150) Ins ($45) and Mgt fee $150 makes $1295 in expenses and cash flow of $205. Also, if you're in a Condo / Townhouse, HOA fees are from $150 to $250/month, which makes it a wash. That said, I think I could now get $1,650 since rents have gone up so much past year.
If you calculate $2650 rent (on a $300,000 unit), only then can you get 25% ROE, which, as said is not possible. At least I've never heard of those numbers nowadays.
Great!
👏👏 Great video!! Just wish I had known this before I renewed a 5year variable. Now I know for next time.
Much appreciated!
We love leverage.
Where out of curiosity would a $300k property with only 20% down cash flow $15k per year?
the background music sounds like westworld or something lol
Is it just me or is it harder to get a Cash-out Refi on a Paid off House than one on a house you owe $ on?
(Both cases you have plenty of equity!
When you do it as a 1031 exchange it is very powerful
A 1031 is actually a different strategy. You have to sell to use a 1031. Refinance you keep the original property.
@@biggerpockets I was thinking like what does a 1031 have to do with cash out
The music is too loud
Can you turn up the music please, I can still hear the guy talking.
How do u find investors..everybody I know is broke from rent including myself but I wanna get outta the rat race
Damn, in 2 years bigger pockets took a leap forward in production value. Completely new face today.
What are the tax implications for the $80,000 cash you get out of this?
Tax free!
0 !!!!
You can really get burned if you pull out money and the market drops. Just do a RE-FI without pulling out money.
If your cashflow still covers your expenses, it shouldn't 'burn you.' Only if you were forced to sell would it matter.
@@biggerpockets I've seen first hand people who took money out of personal homes and rental homes, they lost everything. Look at Dave Ramsey's story. I've been doing real estate since 1995 so I know a thing or two. It's good tax free money, but when the market sours you might be in really bad shape.
For a $300K home, you are getting $15,000 cash flow for year one? Please use more realistic numbers.
Thanks for the feedback. It's meant to be an example to teach people how to do the evaluation on your own.
a 300k property that can net you 15k a year after paying the loan payment this is some fairytale bullshit
Bro, you look like you just got out of bed.
How are you getting cash flow of 15K in first year and then 20K in 5 th year?? Do you really have a rental property :) probably not … if you have you will know the pain and how can any one get 15K cash flow that too on a 300K property… it’s a nonsense. Hypothetically Any one can say 100 things but in reality that won’t happen . Sad.
He has multiple rental properties lol but he explained in another comment it was just to make the calculations easier. I agree it’s not realistic anywhere that I know of.
All trash talk before 1:42. You’re welcome.