Refinancing could be a great tool for the Real Estate Investor to increase his portfolio, but it could be also be a trap.
So, how could an investor tell if it is worthwhile to refinance his property?
Here are some key points that we are taking into consideration when looking for refinancing:
- What is the LTV that the bank will provide? Usually the LTV is lower for refinancing comparing to acquisitions
- What is the current value of your property? Did you accumulate enough equity?
- What will be your new monthly payment? can your NOI support the new payment with buffers?
- What the future looks like in terms of mortgage rates and rents? Will you be able to pay the new payment in 5 years from today?
- What is the cost for refinancing (points, appraisal, phase 1, etc.)?
Those are the basic questions you should ask yourself when considering refinancing.
In most cases, the lending institution will not lend if you are not covered. They will confirm that with the DSCR. However, some banks are stricter and some are not, so make sure you know your numbers before refinancing.
make sure you know your numbers before refinancing.
A bad refinancing strategy could become your nightmare.
We will be happy to help you take the right decision with your refinancing and give you some advice.