Cash-out refinancing allows you to take money out of property investment and put it back into your portfolio or pay off your debts to gain a stronger financial footing. Today, we’re going to take a high-level look atcash-out refinancing in real estate investing.

What Is a Refinance?

A refinance replaces the existing mortgage on your property. Concretely, a refinance is not a redo but rather a new mortgage that replaces your existing mortgage.If you can get better mortgage rates in the present than when you first purchased, getting the bank to refinance your property will allow you to achieve that lower mortgage rate.

What is Cash-Out Refinance?

When you get equity out of a property you currently own, you want to use that money to invest in other deals or perform renovations. The goal with a refinance is to get money out of a property and put it to good use.To do a cash-out refinance, you need to ensure you’ve built up equity through your investment.

In most cases, there’s an75-25 split on the growth value. Therefore, if your investment has grown in value by $200K when you first purchased the property, you can get $150K out during a cash-out refinance.

The Pros of Cash-Out Refinance in Real Estate

• Lower rates: Through a mortgage refinance,you may be offered a lower interest rate than your original loan. Therefore, a cash-out refinance might give you a lower mortgage rate than the rate during your current loan.
• Tax Deductions: There are several possible tax deductions that you may be able to take advantage of when refinancing; depending on the property type.

Using Cash-Out Refinance Effectively

Most people use the money they get from a residential cash-out refinance on vacations or luxury purchases. However, the best way to spend the money is to reinvest it into your portfolio.

• Invest the cash into a new property.
• Renovate the current property or other properties in your real estate portfolio.
• Build on empty lots

Your overall goal should be all about clearing debts and growing your investment portfolio.

Conclusion

A cash-out refinance makes the most sense if you want to get lower mortgage rates on your property investment, and you have a particular use for the money you get back from it – be it through additional property purchases, property renovations, or building costs. If you invest back into your real estate portfolio, you can expect to get a good return on value and put yourself on a stronger financial foundation.

While cash-out refinancing can get complicated once you factor in interest rates, with everything we’ve looked at today, you can start planning a refinancing plan and work out a better mortgage rate. Therefore, at a high-level, this is what cash-out refinance is in real estate investing.