How to Use a Cash-Out Refinance to Fund Another Investment Property
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January 7, 2024

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Strapped for cash but have an amazing real estate investment opportunity around the corner?

Leverage the equity in an existing property to purchase your next investment with a cash-out refinance loan.

In this article, we’ll discuss how a cash-out refinance works and how to access the cash in an existing property to purchase your next.

Get Started with Park Place Finance.

How does a cash-out refinance work?

Cash-out refinancing allows investors to unlock the equity they have built up in a property by replacing an existing mortgage with a new one that is larger than their current balance.

The “cash-out” is the difference between the two loan amounts, which you’ll receive as a lump sum of money.

The cash can be used for any purpose of your choosing—including to purchase your next investment property.

Steps to a cash-out refinance:

  1. Determine how much equity you have in your property by calculating the difference between its current market value and your outstanding mortgage balance
  2. Apply for a new mortgage that has a larger balance than your current mortgage
  3. Get an appraisal to confirm your property’s current market value
  4. The lender will establish the maximum amount you can borrow
  5. Once approved, you’ll receive the refinanced loan with new terms, including a revised interest rate and repayment schedule
  6. Receive your funds as a lump sum of cash
  7. Use the funds to finance your next investment property

Tapping into an existing property’s equity gives you immediate access to cash so you can move forward with your investment goals.

The best way for investors to get a cash-out refinance loan is through a private money lender who can rapidly approve and process your loan.

While traditional lenders such as banks can take several weeks or months to close on a cash-out refi, a private money lender can complete the loan within a few weeks, depending on which type you need.

How to build equity in your investment properties

Tapping into your equity sounds like a great plan, but what if you’re not sure how much equity you have in your existing investment property or properties?

Or what if you’re just getting started and don’t have much equity?

Let’s take a look at some of the most effective ways to build equity quickly in your properties:

  • Make a substantial down payment when you purchase an investment property
  • Make significant improvements on a property to increase its value
  • Make additional principal payments when possible to accelerate the equity-building process, or periodically make larger payments
  • Invest in high-appreciation areas
  • Look for opportunities to refinance at lower interest rates
  • Invest in a mix of short-term and long-term properties to boost your income and cash flow and minimize risks

Investors also might consider a fix-and-hold strategy, where you purchase a distressed property at a reduced price, renovate it, and keep the property as a rental.

Once you have built up significant equity in your property, you can cash out and purchase your next property.

How to access a property’s equity with a cash-out refinance

The first step to cashing out on the equity in an existing investment property is to connect with a reputable private money lender.

Private money loans, also known as hard money loans, are known for their quick approval process and fast funding.

Greater emphasis is placed on the property’s value rather than the borrower’s finances, so private money lenders can more rapidly evaluate a deal and make a decision based on their years of experience.

Park Place Finance is a direct lender offering investors the following loan options:

Private money loans can be structured to fit the unique needs of an investor, including flexible term lengths and payment structures.

Hard money loans are mistaken for being short-term, high-interest loans, but Park Place Finance offers investors short-term and long-term solutions as well as competitive interest rates.

Benefits of a private money cash-out refinance

A cash-out refinance is a beneficial option for investors because it allows them to access the equity that has accumulated in a property and use it however they choose.

Private money cash-out refinance loans have additional benefits to those from a traditional lender, including:

  • Quick access to capital for time-sensitive or urgent financial needs
  • Flexible approval criteria focused on the value of the property and the potential profitability of the investment rather than strict financial requirements
  • Can use the funds for new real estate investments, property improvements, business expenses, or other financial needs
  • Can leverage the equity from multiple investment properties
  • Can use the funds for short-term or long-term investment purposes

Private lenders require less extensive documentation for approval than traditional lenders.

They also prioritize relationships with borrowers, which leads to a more personalized and collaborative lending experience.

While private money cash-out refinancing offers numerous advantages, it’s crucial for borrowers to carefully consider the associated costs, including closing costs and fees.

Borrowers must also have a clear exit strategy for repaying the private money loan.

Tips for maximizing returns on your next property

Leveraging your existing equity for a future property is a helpful solution for moving ahead with your investments and diversifying your portfolio.

However, if you’re using your precious equity, you want to make sure you’re making the most of your next investment.

Maximizing returns on your next property investment involves strategic planning, thorough research, and a proactive approach.

Consider the following:

  • Stay informed about current and projected market trends in the location where you’re considering an investment
  • Study the local real estate market dynamics, including property values, rental rates, and vacancy rates
  • Look for properties with potential for improvement or renovation
  • Consider the long-term appreciation potential of the property

Remember to continuously educate yourself on real estate trends and strategies—and make sure you have a clear exit strategy for each investment.

Apply today with Park Place Finance

Ready for your next investment? We’re ready to help.

Park Place Finance has the experience you need, with 17 years in business and over $1 billion in loans funded.

We also lend nationwide, so we can help you secure financing across 47 states.

To get started, answer a few quick questions about your unique loan scenario, or give us a call at (866) 407-1599 to speak with an account executive now.

Get started with Park Place Finance.
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