Should You Do a Cash-Out Refinance To Buy Investment Property?

Many people hear about cash out refinances that are the main residence of the borrow, and I do know many people who buy San Antonio investment properties and Austin investment properties who pull money out of their home to buy more buy and hold properties.

After all, if you are able to borrow money on your personal residence at a 3% interest rate and are confidant you can invest that money in San Antonio real estate and make 10% reliably, why wouldn’t you do it?

But another cash out refinance to consider is in your investment properties. A few years ago, these types of loans were hard to find after the crash, but now there are many mortgage lenders that offer buy and hold investment property owners the chance to use equity in their investment properties.

Many real estate investors are able to drop their interest rate when they do a cash out, which improves their cash flow too.

If you are thinking about doing a cash out refinance on investment properties to buy more, please keep these thoughts in mind:

Do You Have Equity? 

The more equity in your property, the better position you have when you get a new loan. Most lenders for Austin investment properties, San Antonio investment properties will loan up to 75% of the home’s appraised value. This is the maximum that has been set by Fannie Mae.

So before you opt for an investment property cash out refinance, you have to have good equity in the home. I think the best candidates for this rental property strategy are houses with 30-40% equity in them.

Non-Owner Occupied Cash Out Refi 2016 Rules

  • Maximum LTV is 75% for a one unit property and 70% for a 2-4 unit property.
  • If your buy and hold investment property was listed to sell in the last 1/2 year, the max LTV is 70%.
  • You also cannot do a cash out refinance on an investment property bought in the last 180 days.

Note: Cash out refinance loans on investment properties are riskier for lenders, as you are not living in the house. Expect tougher qualifications and a lot more paperwork than for your own home’s cash out refi.

Expect to need excellent credit scores and six months of cash to handle all of your mortgages.

Some lenders will not allow you to do this if you already have over four financed investment properties.

Is Cash Out Refi the Right Move for You? 

If you have equity, meet all requirements of the lender, and you think a lower interest rate will help, also keep these factors in mind:

  • Look at how much your monthly payment will go up. Can your rental income handle it, when you consider repairs and vacancies?
  • Think about if you are going to buy more rental properties. Taking on more debt could affect if you will be able to get another loan.
  • Do the terms of the refi loan make sense for your goals? Different lenders have all kinds of different terms for refinances for under market value investment properties. If you have an ARM, you want to be sure you can handle change in payment.