Investing in Issaquah property as a low-funds investor can be stressful, especially if you start out with a limited amount of capital. Even if you’ve saved up several hundred thousand and can afford to buy an investment property outright, or afford the substantial down payment on a large property, it can be a hassle to tie up all of your assets on something that might not provide returns for some time.
Refinancing your property may seem like a tempting way to go, especially with raising property values. If you can find property to invest in and refurbish, so that it refinances for more than you paid originally, even better. The following include the pros, cons, and how to get started refinancing your Issaquah rental properties.
Pros of Refinancing Rental Property
Pros of refinancing rental property are essentially that you can get your investment money back and pay it back in small payments, typically lower than your monthly rental rate. This allows you to invest in other property immediately, which means that you can expand your portfolio and increase your potential for return. Because mortgage payments typically cap out between $500-$750 a month, and rental rates are considerably higher, you can either save money, use it for luxury, invest with it, or pay the refinance back at a faster than agreed rate. This is especially true if you can refinance multiple homes or investment properties into the same mortgage, so that you only have one payment.
Increasing property values also make it easier to get a refinance at a great rate, especially if you’ve owned the property for a while, have refurbished it, or it has otherwise greatly increased in value. Usually, you can get around an 80% of value refinance, which means that you can actually get considerably more than you originally spent out of the home in a refinance. This is ideal for in new properties.
Cons of Refinancing Rental Properties
There are several cons to refinancing your rental property, which is why it is very important to calculate the costs and make sure that you can afford the refinance.
Interest rates. Different banks offer different rates. Make sure you know what they are, and weigh the pros and cons of getting a fixed rate or not. It is important to keep in mind that you do pay interest on any refinance, so while you see money more quickly, and can invest in more, you are spending more on the same properties.
It’s more difficult to refinance a rental, you will need insurance, and you will need a guarantee that you can pay several months of the mortgage, even without a renter.
Cash on Cash Return
The most important aspect of refinancing is deciding what your cash on cash return will be. If you’re refinancing at a 5% loss to purchase a property that will get you a 20% cash on cash return, you’re making as much as 15% that you wouldn’t have before, if the property values are the same. Essentially, it is extremely important to do the math to decide how much you will be making before you decide on the refinance.
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