It’s pretty crazy what current low interest rates and rising home values just did for a property we own.
We just cashed out our entire initial investment (and then sone) without making any improvements to the property, and our monthly payment will only go up ever so slightly.
Here are the details…
This is the second rental property I bought, purchased back in 2017:
- Type: Singe-family home
- Purchase price: $115k
- Down payment + closing costs: ~$24,789
- Interest rate at purchase: 4.625%
- Market: Indianapolis
A couple of months ago, I noticed that homes in the area were selling between $140k-160k.
I figured this property *should* appraise around $140k-$150k given comps. So I reached out to a lender to get a preliminary quote on a cash out refinance, and they quoted me at 3.125%.
My first thought: if the property appraised for $140k-$150k, we’d be able to pull out ~80% of the original $25k that I invested. And the best part was that our monthly mortgage payment would only go up a couple $$ given the rate drop from 4.625% to 3.125%.
So we decided to do it.
Fast forward 3 weeks and the appraisal ended up coming back at $157k.
I was so pumped, given appraisals can so often go below expectations. But the market is on fire right now so we lucked out.
We just closed this refi last week and ended up pulling out $26k ($1k more than our initial investment, for a total of a ~105% cash out), given the higher than expected appraisal. All tax-free and will be used to go buy more properties.
And our mortgage payment will only be going up $29/month, so cash flow is still good here.
I don’t know the moral of the story here, especially since we didn’t do anything to force appreciation (like a rehab). It just feels like we got lucky during a weird time & I’ll happily take it.
One takeaway I do think is evident here is that being in the game helps increase your odds of getting lucky. Then again, there are no guarantees in this business that you’ll make money, so don’t just buy to get in. Learn as much as you can before you start investing and make sure you buy something that cash flows.
Also, if you currently own property with equity and your current interest rate is over 4.5%, hopefully this is a kick in the ass to go start talking to some lenders.
Lastly, I want to stress that $26k is tiny compared to what a lot of the pros out there are doing. Think about the people doing this with multi-million dollar properties.