Cash Out Refinancing on Rental Properties

Cash Refinancing

We start off life depending on Mom and Dad for financial support. Then when we become financially independent and start living on our own. That is when individuals start to realize how hard it is to: make money, pay a mortgage or rent, pay the bills and save money. Then as the years go on we start to manage all the expenses easily, and we start to build our savings. With the savings, a lot of individuals decide to invest into real estate to start renting.

Buying Your First Property

Now as an investor, you purchase a house and decide to start renting it out to a young family. As the first couple years goes by as an investor you realize that managing the house as a landlord was easy, and you now want to expand in the rental market. However you realize you do not have enough cash on hand to put down on a mortgage for another property. Let us evaluate a cash out refinance model

Say hypothetically the situation is:

  1. 1st Rental Property Purchased for $400 000
  2. Down Payment Required (25%): $100 000
  3. Mortgage is: $300 000

After three years of paying the mortgage say the mortgage is now $270 000.

As an Investor, you can take a cash out refinance on your rental property (HELOC) for $30 000.

Extra Cash to Invest in a Second Property

Now you have $30 000 cash that you can take from the 1st rental property and use it with your savings towards the purchase of your second rental property, whether it be a condominium, or another house. Now your mortgage on the first property say goes up $125 a month for the Loan off the house, however in the long term of the financial investment you were able to purchase a second rental property by increasing your mortgage instead of waiting to save the $30 000. The Cash-Out Refinancing Model is a great way for investors to continue to grow their real estate portfolio. Once you have a personality that is able to manage and understand using debt for future gains, the cash out refinancing model will assist in growing your portfolio more efficiently.