Many real estate investors find themselves wanting to get cash out of an investment property at one point or another. It may be to cover some unexpected personal expenses or possibly this is their real estate investment strategy. Either way, if you have a multi-family or single-family investment property and need some cash, doing a cash-out refinance on your investment property is an excellent tactic.
What is a cash-out refinance?
Property owners often refinance their existing mortgage to take advantage of better interest rates. In that case, all the equity in the home is typically rolled into the new mortgage.
However, in a cash-out refinance mortgage, the homeowner can take some of that equity out as cash. The homeowner is free to do whatever they’d like with this cash. Doing a cash-out refinance during times of low interest rates can result in gaining cash in hand and a better interest rate on the property’s mortgage.
Reasons for a cash-out refinance on an investment property
There are many reasons you might want to do a cash-out refinance, but the primary ones are:
- Pay for major renovations (for that property or even another)
- Purchase another investment property
- Pay for large personal expenses (such as education)
Pay for major home renovations
Real estate properties need upkeep, maintenance, repairs, etc. These renovations may be necessary, like a new roof, or just preference, like a kitchen update. Using a cash-out refinance to pay for renovations means that the equity in the property is paying for improvements on the property. In turn, these improvements increase the value of the property, meaning the equity you maintained in the property is now more valuable.
Purchase another investment property
One strategy many real estate investors employ is using a cash-out refinance to finance the purchase of an additional investment property. For those who get a large one-time windfall and use it to purchase an investment property, this is a solid strategy. They can use it to build up a real estate portfolio without having to keep contributing more cash.
For example, let’s say an investor puts $100k into Property A. Through either appreciation in the real estate market or by paying down the principal balance in the property, the investor now has $150k in equity. The investor can use a cash-out refinance and use the funds towards purchasing another rental property without having to put any more of their own cash in.
Pay for large personal expenses
Whether you have medical bills, education expenses, or home improvements on your primary residence, using a cash-out refinance on a multi-family or single-family investment property is a fantastic way to pay for these costs. Remember, your investment property is just that–an investment! Which means that it should offer returns at some point. What you do with those returns, including in the form of a cash-out refinance, is up to you.
How to get a cash-out refinance
start the process for a cash-out refinance on an investment property by talking with a mortgage lender experienced with these types of transactions. At Park Place Finance, we are quick and experienced in this domain. Give us a call to get started today.