How To Buy More Rentals With Cash-Out Refinance Investment Properties And No Additional Cash

With interest rates at historic lows, lending readily available, and significant home price appreciation realized in Jacksonville over the last 3-5 years, this creates an incredible opportunity for rental property investors to acquire assets and accomplish their monthly passive income goals… with no extra capital!

In this episode of the Not Your Average Investor Show, JWB Co-Founder, Gregg Cohen, reveals the strategy behind a cash-out refinances on an investment property. Cash-out refinancing is a tool that JWB clients often use to buy additional rental properties without bringing any additional cash to the closing. If you are unfamiliar with the concept of cash-out refinance an investment property, our goal is to share helpful information about using refinance rates to speed up the process of growing your real estate investment portfolio.

What Is a Cash-out Refinance Investment Property?

A cash-out refinance can supercharge your rental property portfolio. If you want to use a cash-out refinance to buy a rental property, you need to follow these steps:

  1. Assess the properties you currently hold.
  2. Define how much equity is built into their current value.
  3. Walk through the numbers to see if a refinance and taking the cash out to place as a down payment on another property makes sense for your situation.

Should I Do a Cash-out Refinance?

If the rental property you own has increased in value and you have gained equity in your property, you can look at pulling cash out for a down payment on another rental property. For example, if you own four rentals, cash-out refinancing may let you purchase four additional rentals. Through cash-out refinancing on rental properties, you can double your rentals to eight single-family homes that provide positive cash flow! That's a great way to increase your assets and decrease your timeline to meet your financial goals.


Do you have any questions about Cash-out refinance?

How to Evaluate If Cash-out Refinance Is Right for You

If you would like to work through the math of doing a cash-out refinance, contact JWB. If you are an existing JWB client, your portfolio manager will walk you through it. Our team will walk you through the following steps:

  1. Discuss your investment goals and timeline to accomplish those goals.
  2. Review the appraisal process first to make sure a cash-out refinance opportunity makes sense for your rental property.
  3. Determine how much equity you can pull out of your property so you do not have to borrow money.
  4. Calculate the interest rates to see if a cash-out refinance makes sense for your situation.

Things to Consider Before You Cash Out Refinance Your Investment Property

Many JWB clients have questions about cash-out refinancing and all that goes along with it. There are considerations that each investor needs to make to make intelligent decisions. 

For example, these considerations include: 

  • Tax deductions
  • Closing costs
  • Interest rate fluctuations
  • Mortgage balance
  • Credit score
  • Mortgage payment
  • Cash flow
  • The number of rental properties involved

In the last two years in Jacksonville, there has been higher-than-average appreciation going on in the market. For people who have owned the property for 10+ years, the opportunities for cash-out refinancing can be huge. Through cash-out refinances, you can tap into that increased ROI to help you buy additional properties while the interest rates are still low. 

Even if you bought your property 15, 9, or 3 years ago, Jacksonville is a well-known market that produces positive cash flow. That is why cash-out refinance opportunities are so good here. When you own multiple rental property assets, there are more opportunities to speed up your timeline of acquiring rental properties and retire with your passive income.

What Not to Do with a Cash-out Refinance Investment Property 

If you want to take the equity line of credit from your cash-out refinance to consolidate debt, pay for college, or spend it on day-to-day expenses, we do not recommend these actions. What we advise is to use the cash-out refinance to leverage the growth of your existing portfolio. If you squander the money gained from the equity line of credit and don't apply the extra cash to grow your investments, you are setting yourself up for disappointment and failure. A cash-out refinance works best if you allow it to work FOR you and make you more money.

Don’t Spend Your Money on Other Things

Tapping into the home equity line like an ATM were patterns that ran rampant before the Great Recession of 2008. It did not help when adjustable-rate mortgages, skyrocketing mortgage loans, and line of credit HELOC issues hurt so many homeowners. JWB would never want you to suffer what affected so many homeowners at that time. Instead, we recommend that you take the equity built into the appreciation of your rental properties to purchase additional cash flow assets to speed up your ability to become financially free.

Don’t Wait Too Long to Refinance

Another thing you should not do? Wait too long before taking action. Why? Two years from now, your cash flows on properties will be lower than today because property values are going up, and so will higher interest rates. Right now is the perfect time to do cash-out refinancing, so don’t wait too long.

Why Your Return on Equity = 0%, and How You Can Access the Equity in Your Rental Properties to Help You Accomplish Your Passive Income Goals Quicker

With a cash-out refinance, you refinance the existing house that has appreciated with a new loan, and you pull $50K, for example, out of that house you own to use as a downpayment for another rental. A lot of investors grow their revenue through cash-out refinancing. Why? Because you don't pay any taxes when the cash is tied to a loan. Not only do you get some money from something you continue to own, but you also are not paying taxes on it. It's a win-win.


Are you ready to take action?


Will a Refinance Negatively Affect the Positive Cash Flow on Your Current Property If You Do a Cash-out Refinance?

It all depends on your property and your situation. You need to look at your previous loan amount, the interest rate on that original loan, and the money you're collecting on rent. If you talk to your JWB portfolio manager to determine if that property will continue to have positive cash flow before you decide on moving forward with a cash-out refinance. We'll help you figure out the math to see if it makes sense for you and your financial goals.

We have a lot of clients at JWB who have been with us for several years. Several of them have used cash-out refinancing to get the down payments for their subsequent rental property purchases.

A JWB Case Study: Go from 4 Properties to 8 with No Additional Cash Required

Gregg and Pablo looked at a spreadsheet showing Client Adam's portfolio and how he is getting closer to his passive income goal faster. Low-interest rates plus appreciating markets make for an exciting opportunity. The way the numbers work, you can maintain positive cash flow, have a property that's increasing in value, and you can use the extra money to buy more properties. You're being rewarded for holding onto your properties for a complete market cycle that will benefit many investors.

It’s All About the Numbers

Looking at Adam's portfolio report, we looked at the current market value of the properties he owns. They roughly are all worth about $160K and appreciated quite nicely. Gregg ran the numbers to show that the bank will lend you 75% of what the home is appraised at today. 

Take the number of $160K and multiply it by 75%, and the new loan will be about $120K. There will be refinancing fees of approximately $5K. Now, you've gone to $115K, and you subtract what the loan amount is currently, which is about $50K. Subtract $50K from $115K, and Adam would get about $65K to invest in new rentals. 

That's a phenomenal deal! That's getting your money out at a lower interest rate, and it's like getting new money for free. You take that $65K and place that toward buying a new cash flow property so you can get closer to your passive income goals.

Getting Closer to Passive Income Goals

If you're like Adam, and you only own four properties and need to make $6000 per month on passive income to retire, you still have a ways to go before you can hit that passive income goal. But if you do the cash-out refinancing on those four properties and get eight properties, you get closer to that $6000 per month goal. Plus, as property values continue to rise, so do rents rise. 

You're still positively cash flowing, even on the previous asset. Right now, because rents are up and interest rates are low, the chances are very high you'll preserve your positive cash flow. It's a win-win situation for your retirement plan, so we encourage you to speak with your JWB portfolio manager to see if the cash-out refinance is a wise move for your situation.

The debt paydown, the tax benefits, and holding onto properties through a full market cycle are all ways to leverage your JWB assets. Usually, you'll see a 20% return on investment. But even if you give up some cash flow and still get a 10% ROI, you're still in a good position for growing your revenue.

What Are Your Investment Goals?

When you talk to JWB, we want to know your goals when guiding you through your investment options. Would there ever be a situation where the cash-out financing tool is not ideal? Yes, and that is why we want to know your goals to give you peace of mind. We think it's essential to have your goals in mind when looking at ROI. 

What are the things that keep you up late at night? We want you to feel comfortable with your JWB investments, so each conversation will be unique. Even if your interest rates are higher, the math may show that you're still in an excellent position to invest your money and watch it grow because your returns are still good at 10%. 

Chat with us at https://www.jwbrealestatecapital.com/ if you have questions about a cash-out refinance investment property and would like to start a conversation about your passive income financial goals. Join our Facebook group as well at https://www.facebook.com/groups/rentalpropertyinvesting/.

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If you’d like to schedule some time to chat with our team about how we can build and implement your plan for acquiring rental properties, click here to set up a strategy session call.

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To Your Success,

Gregg Cohen

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