Cash-Out-Refinance | What It Is & How To Use It! 

ok I'm glad I wasn't the only one who was completely lost lol

Y, I thing biggerpockets is a fluff

@@juanalmos1959 I just want to give a friendly reminder to be aware of where you put your money, putting that money straight back into another deal would most likely make you more money than those CC/Car payments would cost you. Just depends what you’re looking for 🤝

This video was absolute dogshit

Exactly

😂👍

Amen. I am a math fanatic and this made absolutely no sense. Some people just have the gift of teaching... Others clearly don't. Now, let's jump to another video and hopefully they'll do the trick.

@@melvinp.h.3069 I mean, SHIT!!!!

Yep, ended this video within 30 seconds.

Lost me about 2 minutes into the video 😂

Me to, wtf🤷🏽‍♂️

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@@anthonymason3501 this doesn't seem like a scam at all!

@@thereconracoon3715 just contact him, and you will be glad you did.

That’s a good thing find the answers to those questions and you’ll be one step closer to your goals

Just take a zero off his numbers 🤷‍♂️

You forgot the cap rate formula 😋

Totally agree. The average weighted "cap rate" of both properties would be 145K/1.9M = 7.67% ( which is exactly the same as the individual properties). you guys will enjoy my channel for finance and economics insights

So if my home went up in value for example to almost 400k and if I want to buy my parents a new home how can I go about this please help ty ❤️

@@twincherry4958 How is it 1.9M? That 400K property value is actually part of the $1.2M Mortgage loan. Cash out refi works like this, if you left that house as it was in 2019 (no refi, nothing) then you are getting cap rate of 7.67% because your property value increased and your NOI did not increase with same rate. So to leverage your cap rate with the increased property value, use that value to cash out refi and take that increase (in this 400K) and invest to get more income. This will help cap rate to not fall to 7.67%. Basically you are using bank money based on the new value of your home to get more income. Actually this is cool concept because here property value increased due to time. You can increase property value with renovation (and little time) and cash out refi for extra income

@@saitharunthodupunuri 🙃 I just got a Heloc and used some of it as down payment...cash flow covers mortgage, insurance, etc., Heloc payment and there's still cashflow.

Hassan Ali then you are an idiot bc this is basic 101 stuff

You should seek out a video or some other form of instruction that explains what a cash out refi is. As far as cap rates and the other technical jargon, you don't need to know all that to become a successful real estate investor.

dont buy apartment buildings then

Ya just keep working at the bowling ally

You guys being so mean lmao, Hassan's just a slow learner. I got it my first time watching this video, but just practice and try to understand it and i think you;ll get it soon enough

I agree his numbers sound crazy y not start at 200000 some folks are newbies hon.

@@alib5074 you can divide everything by ten if it makes more sense for your market/experience. Just wanted to use large whole #s here.

What is the cash flow after the refi? You left that blank?

It's wrong, that's why.

@Korra Norg isn’t there an interest payment on the borrowed money(equity) when you take it out though?

Pretty sure because he was trying to keep it simple

@@spldrong but by doing that it makes it look waaay better than it actually is.

@Amit Golan He is assuming that the interest rate is going to stay the same and he is breaking it down into 2 different loans for simplicity sake. Instead of mathing out whatever minuscule amount of the principle that would have been paid off in 5 years he is just leaving it at the initial 800k amount. So the first set where 2019 mortgage payment stays the same is the original 800k loan that you would be replacing with the refinance than the 2nd column is showing the "equity" of 400k that you are pulling out which would cost 25k per year in loan costs. so the total payment for the refinance loan amount would be about 75k. Not sure why he broke it down that way but that's what he is doing.

Mortgage should be much lower, Interest Rates don't stay exactly the same, there are unaccounted remodeling and closing costs, and the cap rate calculation is wrong at 9.71% (should be 7.67%)

Correct me if I’m wrong but I think he was using the same mortgage amount to show that the leverage ratio stays the same (20%-80%)

Do you have any suggestions on where or how to learn about this subject?

@@alannickerson7143 biggerpockets.com and the biggerpockets real estate investing podcast are phenomenal. Check em out!

Can you cash out refinance when a house is paid off?

LOL, I am a 19yo bachelors about to be 20yo MBA grad, still found this tough to comprehend, but what i understood is you basically get 80% of the appreciation out as cash to reinvest. You said instead of buying in full why not get another mortgage at 20% down with the 400k

Right! he missed out big time on that, with someone else paying the mortgage it means hes paying down the debt which increases his equity as you said but he kind of covered one side and left the other stranded.

Kerry Triplett no, because its an interest only loan

That's how I started, actually that was the second move. Good fortune to you!

Kevin you have no idea what your talking about. 80% ltv is standard and the market will never collapse 60%. I’m assuming you’ve never invested in real estate before

@Kevin Schmidt if his primary did collapse in value he would just stay in his primary and it doesn't effect him at all as long as his cash flow remains......are you just trying to say that prices are at another high and implying a crash..?

@Kevin Schmidt if that's the case then everyone is screwed anyway and it doesn't matter....should we all do nothing because a crash is always inevitable?

@Kevin Schmidt im not saying i haven't.... do you do nothing because you always assume a crash is coming....you're watching real estate videos and telling people not to buy...

Ok the reason the mortgage was the same is because the 500k increase in the value rolled over into the previous equity. Meaning you have 700k in equity which also means you only need an 800k mortgage to buy the now 1500000 property.

Yes!

Well, for starters: -He glazed over terms that his target audience (aspiring first time home owners) is most likely unfamiliar with. -He didn't simplify the concept as whole, but instead focused on the math of refinancing

Only reason I understood this is because I know about it but to be fair he left important factors out of the picture that only make real estate investing a lot more enticing.

he could have explaned it easier without adding the second property

Yup. Was easy to follow for me too:)

Thats my question.

In short, a HELOC is generally used as a short-term solution for quick acquisition of the property, and a cash-out refi is used to then move the acquired property into a much more stable strategy for the long haul. For example, I use a HELOC as my liquid capital so that it's available whenever I find a good deal. That way, I can snag it easily by making a cash offer. Then, once I've purchased the property, I do a cash-out refi after the fact, which accomplishes two things: (1) it moves the debt into a long-term, fixed-rate solution so that I can set it and forget it, and (2) it pays off what I originally drew out of my HELOC, which frees my liquid capital back up to look for the next deal. Then, I just rinse and repeat ad infinitum. 😉

Scott Kay's, I appreciate the reply. Short and concise explanation!! Appreciate it 👍

My pleasure! 👍

how long do you keep it mortgage free (on average) before you refinance and put debt on the property? my understanding is banks normally wont normally allow refinancing until 3-6 months of ownership has passed? have you experienced this.............. ?

@@RAG718 Generally speaking, you're right. A standard cash-out refinance requires the property to season for a minimum of six months before you can apply. However, under the category of cash-out refinance, there's a subcategory called a "delayed-financing exception." This exception is fairly new as it was only created in 2011, so you may have to shop around a bit to find a lender that (A) knows what it is and (B) knows how to process it. Anyway, the exception allows you to do a cash-out refinance immediately after closing on the property. The trade-off is that it comes with stricter (although not insurmountable) guidelines. But, it can be done. In fact, I just simultaneously wrapped two of them up at the beginning of last month, which freed up my capital to buy another one and start the process all over again.

400000

Should always leave extra money for unexpected contingencies and costs and not spend it all

Jeremiah DSCR?

carlos eliz Debt service coverage ratio, how much the property’s income can cover the debt.

Do you have positive cash flow on your existing investment properties? If so that can be considered income depending on how you have your company set up.

The property price increased from 1mil in 2015 to 1.5mil in 2019. Your initial investment was 200k but now that the valuation of the property went up, that increased your equity to 700k. (200k deposit + 500k appreciation) Since you request a refinance for your appreciated 1.5mil property the bank will still need to hold a 20% deposit on that new price. So the 20% of the new property price is 1.5mil x 20% = 300k in equity-deposit which leaves us the remainder 400k to re-invest in the duplex. The property appreciation, increased the amount of equity from which you can borrow from. Correct me if I’m wrong, I’m still new at this game so I’m might missing something.

Same

Yep, He missed this.

Exactly

That's not how a 25yr mortgage works. Even if you're terrible at math, you should quickly see that you're not paying off a quarter of the mortgage in less than a quarter of the time. But if you know anything about mortgages, you're not getting anywhere near 200k in just 4 years. Use an amortization calculator, and you'd see that you'd only have paid about 75k on the principal.

Pregnant Nuns you’ll probably have to look them up one by one but yea, there has to be!