When Is The Best Time To Refinance My Investment Property?
When is the optimum time to refinance an investment property loan?
The number of real estate investors and landlords in the US has swelled dramatically in the US. While asset prices, demand for units, and rental rates have treated investors very well the true net profitability and returns of any given investment property and opportunity firmly rests on the leverage being used, and the financing in place. So whether there is no mortgage and individuals are suffering from subpar returns due to poorly used equity, or there is already a mortgage loan in place, when is the best time to take out a refinance loan to optimize returns and portfolio performance?
The short, simple answer is now, or as early as possible.
Generally the earlier an investor refinances a property the sooner that they can begin realizing savings, and the better total net gains they will experience on any investment property over the life of the investment.
Of course there can be several exceptions to this ‘rule’.
Refinancing investment property loans when interest rates and borrowing costs are at their lowest clearly makes the most sense. Historical data and cycles suggest that mortgage loan interest rates will continue rising in tandem with housing prices. Globally these upward phases have proven to last an average of 7 to 15 years. This suggests interest rates will continue through 2022 to 2030. It could be years after that before they come back to near where they were at the beginning of 2015. Just a couple of points difference can make hundreds of thousands of dollars difference in total interest paid over the life of a loan. So based on rates alone, now is still the best time to refinance investment property loans.
A second exception is when investors are working on improving property performance. If distressed properties have been acquired in poor condition, units were vacant on acquisition, or tenants can be replaced and seasoned at higher rental rates, better loan terms might be available once performance and condition is improved. However, if interest rates rise during this period any potential gains from waiting may be eliminated.
A third exception could be when investment property owners are 100% confident that they are able to improve credit, and credit scores, or hit other underwriting milestones which can qualify them for better refinance loan deals with a short window of time. Again this can be a gamble as there are no guarantees that mortgage loan rates won’t go up, or investment property loan program parameters won’t change.
Ultimately, if real estate investors can qualify for an attractive refinance, there is normally no time like the present to take advantage of it.