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Refinancing an Investment Property

Key Takeaways

  • Cash-out refinancing can help pay off other debts or large expenses.
  • Consider remodeling or updating the investment property after refinancing to appeal to short- and long-term renters.
  • Calculate the refinance break-even point by factoring in all upfront costs of refinancing the loan and how much you’ll save each month.

When you own an investment property, the goal is to earn a solid rate of return. If after several years of ownership you find your return is not what you expected, an investment property refinance may be the answer.

Start the process by looking at investment property refinance rates to be sure they represent a savings over your current rates. When done properly, refinancing an investment property can increase your short-term cash flow and help you build longer-term wealth.

Refinancing an investment property to boost your cash on hand

Cash-out refinancing might be the right answer for some property owners. Once you've accumulated equity in the property by paying the mortgage on time for several years, you can refinance for more than you owe on the property. The difference will be given to you in cash. This can come in handy if you need to pay off other debts or large expenses, whether those are credit lines, medical bills, or maintenance bills for the property.

How an investment property refinance can pay off down the road

Once you've received the cash from refinancing, you may consider remodeling or updating your investment property. After all, it will perform best for potential short-term or long-term renters if it's up-to-date in appearance and structure. You could make aesthetic changes like repainting the interior and exterior, updating the kitchen, or installing hardwood floors. You could also enhance the home's structural features by installing central air conditioning, new windows, or even building an addition. Upgrading your investment property could turn it into an even more appealing investment by making it more desirable to renters who are willing to pay more.

Another option may be purchasing an additional investment property. With the equity you've built in the first property and the rent you're earning from it, you may be able to take the money from your cash-out refinance and leverage that to buy a second house or apartment building. This is how many small landlords build their portfolio of investment properties.

Complete a break-even calculation when considering refinancing

Before you refinance any property, you should do some quick analysis on how long it would take to break even on that transaction. First, look into refinancing rates. You'll want to be sure your investment property refinance rates are lower now than when you initially made the purchase.

Then, the refinance break-even point can be calculated by taking into account all the upfront costs of refinancing the loan — typically the closing costs plus any points — and how much you'll save each month. When you compare the two numbers, you can determine approximately how long it will be before you break even and begin to save money. If you don't plan to own the property for at least that amount of time, refinancing the investment property is probably not an ideal financial decision as it will cost you more money than it will save you.

More information

We are committed to helping you reach your potential by providing personalized solutions. Our dedicated colleagues can help you find the right product to help you reach your goals. To learn more about mortgage solutions, please call 1-888-514-2300, visit us online, or find a loan officer.

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