Should you refinance your property to pay for a down payment on another property? – John Schaub

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About This Episode

Episode #326b – Learn the risks, benefits, and why John Schaub advises against refinancing personal residences. Elevate your investing game with strategic insights in this quick, power-packed episode!

Episode Transcript

If you’re trying to grow as a rental investor, eventually you run out of money, and then you can’t buy any more rental properties. So one strategy to solve that is called a cash-out refinance, where you refinance the property you already own, you pull out the cash, and you use that cash to buy your next rental property. But recently, I asked John Shob, who’s been a rental investor for over 50 years and wrote the classic book Building Wealth, One House at a time? Is this a good idea? And in this special Ask Coach edition of the podcast, I wanted to share John’s answer with you. Now, let’s get to John’s answer.

Well, if you had another property that you knew you could buy in a terrific It’s a big deal. If you go out and buy a $400,000 house for $300,000, then you scramble to find the money any way you can because it’s a terrific deal. But what I see happening when people refinance a house is, first of all, they’re paying off sometimes a good loan and taking a loan that’s not as good. So they’re going from a low… If you went from a high interest rate loan to a low interest rate loan, that would be an argument for doing this. So if you had a 10% interest rate loan and you get a 5% interest rate loan, sure, refinancing makes sense. And I have refinanced properties, but when I refinance the properties, I’m generally doing it to increase my cash flow. So if you took, for example, if you take an old loan that has a big principal payment, maybe the principal payment is $500 a month, and you can refinance that with a 30 your loan and your principal payment is only $100 a month, your cash flow would jump up $400 a month, even if you had the same interest rate.

So you look at all these numbers and study it before you do it. But when you refinance a loan, you have closing costs of course. The day you’re refinancing, your networth has actually dropped because you have cash in your hand, but you paid maybe $5,000 to refinance this loan. So you have to make sure that the new loan that you’re putting on this house is not a high-risk loan. It’s not going to cause you to ever lose that property. That’s why I would never refinance my personal residence. We’ve owned our personal residence free and clear for almost 50 years. Never going to refine, never going to borrow money against that. I never want to risk that. So you’re taking some risk when you put a new loan on the property. Of course, if you’re getting a bank loan, you’re signing their paperwork, which is strongly in favor of the bank. If you can’t pay them back in a state like Florida, they’ll come after other property you have. That’s been a real eye opener from the people from California who are in need of trust today. They come to Florida, which is a mortgage state, and they find out that they have personal liability on these loans, which means if they don’t pay them, they’ll come after you.

They’ll find other assets you have. They’ll get judgments against you. You’ll pay that money back plus attorneys fee. So it increases your risk when you refinance something. But the bad news is now you’ve got cash in your hand. If you haven’t identified this next deal that you’re going to buy at a bargain price, you may not do it. You may buy a car instead, or you may pay too much for the next property. And I will tell you, write this down. If you’ve never had this thought before. You’re going to make your best deals, your best deals when you don’t have any money, when you’re broke, when you can’t write a check, because now you can go buy somebody’s house and say, look, I’ll give you some money if I had some, but I don’t have any. But I can solve your problem. I can take this house off your hand. I can start making your payments. You’ll never see this house again. If it’s a landlord, you’ll say you’ll never see this tenant again. You solve a problem for somebody and you can make a nice profit by doing that without putting any money down.

So when you have a, and I’ll tell you, a couple of things make me stupid, but one of them is having a lot of money in my hand because how I can go out and do something wrong with it. You can buy the syndication. I bought part interest in a television station once. That was stupid. We still talk about that. Just things you can do because all my buddies were buying part interest in a television station. I didn’t want to let it get away. I wanted to buy part interest in a television station. That caused me a whole bunch of money.

I want to go full circle. What you were just talking about, let’s say you didn’t refinance. Let’s say, I want to buy another deal, and you had six or $700 in cash flow on that property. You could go back to your original deal where you said, What if you bought a property with no money down? It was negative $300 per month, but you could take half the cash flow from this existing property to fund the new purchase of this property, which is also a good deal. Instead of going out and refinancing it, you kept that alone in place. You leveraged your cash flow, but you were creative and you were thoughtful. I think that’s the big takeaway I always get from your stuff, John, is that you got to use your knowledge, you got to use your knowledge. You got to use your brain. You got to use your creativity instead of just brute force, just go buy a property. You got to think outside the box a little bit.

Think a little bit, yeah. And don’t be in a hurry. But what you’re saying is exactly right. See, if you refinance that house, you may put that house at risk. If you don’t refinance it and it has positive cash flow, and it’s a good house, you’re going to keep it for the next 10 years, well, just use that cash flow to buy your next house. So we go out and look for that house and maybe lose $300 a month. You can afford it now because you take $300 from this house If for some reason the new deal goes bad and you can’t afford to make those $300 payments, you can probably walk away from that deal because you didn’t go down to the bank and get along. You don’t have personal liability. I’ve never had to do that. I’ve never put myself in a situation where I had to give it back to the seller, but you could give it back to the seller if things really got tough.

If you like this topic, I think you’ll like my next video where I interview an investor about his strategy to buy properties with little money down using seller financing. In particular, I think you’ll like a case study he shares with all the details about how he bought a property in today’s market. I’ll have a link to the interview in the podcast description or the YouTube description below. Thanks for watching. And until next time, I’m Chad Carson. You can also call me Coach Carson. And this is a channel to help you get out of the financial grind so you can do more of what matters. See you next time.


  1. John’s full episode:
  2. Building Wealth One House at a Time:


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