Real estate investing is an excellent way to build wealth and generate passive income. However, as an investor, you may need to tap into the equity of your rental property to fund other ventures, such as purchasing additional investment properties, renovating existing properties, or investing in other ventures. This is where a cash-out refinance for an investment property can be a useful financial strategy.

A cash-out refinance for an investment property is a type of loan that allows real estate investors to access the equity in their rental property by refinancing their mortgage for a higher amount than what they currently owe. The difference between the existing mortgage balance and the new loan amount is paid out in cash, which can be used for various purposes.

The Benefits of a Cash Out Refinance for and Investment Property

One of the key benefits of a cash-out refinance for an investment property is that it allows you to access cash that you can use for other investment opportunities. For example, if you have built up equity in one rental property, you can use a cash-out refinance to access that equity and use the cash to purchase another investment property. This allows you to grow your real estate portfolio and generate more passive income.

Another benefit of a cash-out refinance for an investment property is that it can help you to lower your monthly mortgage payments. This is because interest rates for investment properties are typically higher than those for primary residences. By refinancing your mortgage at a lower interest rate, you can reduce your monthly mortgage payment and free up more cash flow for other investments.

Risks of a Cash Out Refinance

However, there are some risks associated with a cash-out refinance for an investment property. One of the biggest risks is that it increases your debt load. By taking out a new loan for a higher amount, you are increasing your debt load and potentially extending the repayment period. This means that you will have to pay more in interest over the life of the loan, which can be costly.

Another risk of a cash-out refinance for an investment property is that it reduces the amount of equity you have in your rental property. This can be risky if property values decline or if you need to sell your property in the future. It is important to carefully consider the potential risks and benefits before deciding to pursue a cash-out refinance for an investment property.

Summary

In conclusion, a cash-out refinance for an investment property can be a useful financial strategy for real estate investors who need access to cash for other ventures. It can help you to grow your real estate portfolio, lower your monthly mortgage payments, and simplify your debt management. However, it is important to carefully consider the potential risks and work with a reputable lender who can help you make an informed decision. By doing so, you can take advantage of the benefits of a cash-out refinance for an investment property while minimizing your risks.

The states with the fastest-growing populations are Texas, Florida, and the Carolinas, respectively. While the cost of living in these states continues to rise, New York and California rank dead bottom.

Inflation and growing house prices in major cities put a strain on the economy of the United States. They are looking for sanctuary in places like Florida and Texas, as well as the Carolinas, which have mild weather, reduced living costs, and many employment possibilities. The National Association of Realtors (NAR) examined census data to determine which states saw a loss of inhabitants in 2022 and which experienced population growth. The patterns make it evident that many Americans are migrating as a direct reaction to worries around cost.

Migration Patterns Are Changing Across the World

Even when remaining in the exact location is no longer financially feasible, the choice to relocate is rarely straightforward. Even though the epidemic allowed more people in the United States to work from home and fueled the desire for more space, these factors only resulted in a minor increase in domestic migration, which has been in steady decline for decades. According to The Brookings Institution’s findings, the domestic migration rate reached a record low in 2022. Almost twenty percent of Americans relocated each year throughout the decades after World War II. This is because the United States had a young generation with a higher percentage of renters and a higher percentage of single-earner households, which made it simpler for families to pack up and relocate in order to take advantage of new employment opportunities. Migration rates dropped to between 13% and 14% by the beginning of the 2000s, and the Great Recession made the decline in migration much more pronounced. The second half of 2022 saw rising mortgage rates, which made moving further away an even less attractive option. During the pandemic, homeowners who could lock in low-interest rates on their mortgages could avoid foreclosure. The homebuying boom did not encourage people to relocate. In addition, according to Pew Research, the trend toward urbanization is reversing itself because fewer people are moving into metropolitan regions where rents have quickly increased.

Nonetheless, although international migration is decreasing, movement across longer distances is picking up pace. In the years 2021 and 2022, there was an increase in migration between states and counties. Longer-distance movements indicate trends in forced early retirement and voluntary job-quitting tendencies that were prominent during this period. Both of these trends became more widespread during this time. Many took advantage of these changes to move to other states hoping to find better work or housing that was more inexpensive.

Where Are People Moving?

The six states that saw the most population growth in 2022 were Florida (+1.9%), Texas (+1.6%), North Carolina (+1.3%), South Carolina (+1.7%), Tennessee (+1.2%), and Georgia (+1.2%). Florida had the highest percentage of new residents, followed by Texas, North Carolina, South Carolina, and Tennessee. In addition to those states, Arizona, Idaho, Alabama, Oklahoma, and Nevada ranked high on the list of those receiving the newest residents.

The Tax Foundation suggests that one of the selling points may have been the relatively low tax rate. However, those cost advantages will likely be outweighed by the potential reduction in monthly mortgage or rental payments that new residents of these states may experience, particularly those moving here from significant metropolitan areas such as New York. According to the Fiscal Policy Institute findings, the typical family that moves out of New York saves 15 times more money in housing expenses than they do in taxes.

The NAR also analyzed data from the USPS to determine migration patterns between metropolitan regions. Cities in the South and the West also had the highest rates of people migrating outside the country.

The following are some of the regions that saw the most significant amount of population growth:

• Ocala, Florida
• Savannah, Georgia
• Tallahassee, Florida
• Deltona, Florida
• Charlotte, North Carolina
• Miami, Florida
• Huntsville, Alabama
• Houston, Texas 
• McAllen, Texas
• The coastal town of Myrtle Beach in South Carolina

According to the NAR, these Sun Belt regions witnessed a swift rebound in employment opportunities during the pandemic. In these regions, around five percent more employment is available on average than in March 2020.

Where are people heading when they leave?

People in the United States are fleeing areas with high housing prices, high tax rates, and/or sluggish employment growth because they are moving to states in the South and West, where housing is more affordable. During the year 2022, the states of California (-0.3%), New York (-0.9%), Illinois (-0.8%), New Jersey (-0.1%), and Massachusetts (0.1%) saw the most significant loss in population. Although some of these states have stunning metropolitan centres with real estate values, some of these areas were sluggish to recover following the pandemic.

The typical selling price for a real estate investment property in San Francisco is now $1.275 million. For instance, as of July 2022, just one metropolitan region in Illinois has completely recovered from the employment losses caused by COVID-19, while the state has only regained 86% of lost jobs.

Moving Due to Housing Concerns Becoming an Even More Frequent Occurrence

Moving for a better job or school opportunity has historically been the second most common reason. They opt for areas with better communities, more significant amounts of space, and lower housing costs. However, statistics from the Census suggest that relocations for reasons linked to housing have grown even more prevalent during the epidemic. In contrast, the percentage of persons relocating for reasons connected to their families or jobs has somewhat decreased. In 2021, 46% of Americans relocated for reasons linked to housing, representing a six percentage point increase from the previous year. Migration is taking place by an all-time low number of individuals right now. However, those who are moving are heading in a more distant direction.

People are still looking for cheap housing in large cities, traditionally the most attractive locations. As a result, population expansion occurs more often in the southern and western regions of the country. Eventually, there will be a higher demand for property in these locations, which will lead to a rise in house prices; thus, investors may research migration patterns to locate places that have the potential to expand in the future.

While the NAR predicts that the total price rise will be 0.3% for 2023, they believe Atlanta will be the top market.

According to the National Association of Realtors, the housing market will see more difficulty in 2023; nevertheless, this year will not be the worst (NAR).

Late in 2018, NAR’s Annual Real Estate Forecast Summit participants were allowed to voice their predictions for 2023. The forecast, developed by the Chief Economist of the NAR, Lawrence Yun, may be summed up as a year that would be sluggish for house sellers. Even if there is a minimal probability of a housing market disaster occurring right now, all of the present patterns point to next year, seeing a decrease in sales and a slower increase in house prices in most places.

Yun predicts numerous growing housing areas that will likely witness price rises in 2023, just like Austin and other cities did during the pandemic. These price hikes will probably be similar to the ones that Austin experienced.

Who Will Replace Austin?

According to the National Association of Realtors (NAR), the following metropolitan areas will be the most active housing markets in 2023:

• Jacksonville, Florida
• San Antonio, Texas
• Dallas-Fort Worth, Texas
• Charleston, South Carolina
• Atlanta, Georgia
• Raleigh, North Carolina
• Knoxville, Tennessee
• Greenville, South Carolina
• Huntsville, Alabama
• Fayetteville-Springdale-Rogers, Arkansas-Missouri

In 2023, the South will be in the driver’s seat. According to Yun, “Southern states, almost without exception, fulfill the conditions of acceptable affordability, throughout, and high-paying employment being produced” (Southern states typically meet the requirements of reasonable profitability, in-migration, & high-paying jobs being created).

If investors in real estate wish to make the most of the possibilities presented by these markets before they ultimately become oversaturated, as has been the case in Austin, they should take notice of this tendency and act accordingly.

The Annual Rate of Increase in Real Estate Property Prices Will Remain Steady or Fall

In 2023, it is anticipated that home price growth will halt, officially ending the Covid price bubble. The current forecast is for a modest gain of 0.3% on average, which would lower the national average house price to under $455,000. In essence, this indicates that the housing market is still expanding at a more modest rate.

According to the NAR, we have successfully sidestepped a catastrophic collapse or anything remotely resembling a catastrophe. The labor market has shown signs of continuing to be robust, specific markets’ prices have remained relatively unchanged, and inflation has started to fall. Yun points out that “today there are some layoffs in the mortgage business, and maybe the technology industry has stopped employing people, but if you look at the internet, there are still circumstances that favor the creation of new jobs.”

The housing and mortgage markets have also served as a crucial buffer against a market collapse. It is reasonable to argue that the housing market has become more resilient due to the tightening of borrowing laws that occurred in the wake of the subprime mortgage crisis in 2008. “During the previous cycle, subprime mortgages were widespread, often known as shady, dangerous, and self-reporting mortgages. According to Yun, “this time around, individuals are required to follow the new laws; therefore, this time around, we won’t have such dangerous mortgages.” The National Association of Realtors (NAR) forecasts that mortgage interest rates will drop below 6% sometime during the third quarter of 2023 and stay at that level until the end of the year.

In conclusion, the gap between supply and demand will not be closed shortly. This indicates that buyer demand will continue to prop up the economy for many months, keeping housing values stable in most areas except for California, which would be anticipated to undergo a significant decline in home prices of 10-15%. However, if you live in California, home prices are expected to remain stable.

The St. Louis Federal Reserve provides data on the median sales price of homes sold (1963-2022).

Home sales are expected to decline further.

The most important forecast is that existing-home sales will continue downward through 2023. We have been following a decreasing trend up to 2022, and this tendency will likely continue. Existing house sales had a 16% year-over-year decline in 2022, bringing them to their lowest levels since 2014.

The number of newly constructed homes is showing improvement and is trending toward their historical norms. After suffering its biggest crisis in the wake of the financial meltdown of 2008, the market for new home starts has made a gradual but steady comeback over the last decade.

The general market is expected to continue its downward trajectory next year, which will be reflected in the slowdown of this sector of the housing market. However, new house sales are holding up better than existing home sales, as Yun points out. The subprime mortgage crisis caused a significant drop in sales of new homes, which has yet to be completely recovered. In addition to this, as a result, they had a low base reference against which to compare.”

The St. Louis Federal Reserve’s Estimate of the Number of New Housing Units Started That Are Privately Owned (1960-2022)