How to categorize proceeds from a refinance

I just did a cash-out refinance on a property, and I am unsure how to categorize the funds. The closest I can find might be a principal refund? This doesn’t seem correct. Can you suggest where this would be best categorized?

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Had the same question as well

Following, same question.

@reed @jrvoncannon @johnmanner Good question. Refinance proceeds can indeed be categorized as “Money In” to “Mortgages & Loans > Mortgage Principal.” Funds received will then be reflected on your Net Cash Flow report as a positive number. If you also paid off an existing loan balance, you’ll probably want to record just the net cash out amount.

Note that you’ll also want to update your existing/new mortgage info via the Mortgage card on your Property Details page. For more info on how to do this, check out Mortgages & Loans: Add & Edit.

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Hello Devin,

I’ve categorized my cash out refinance funds as you’ve outlined. However, I’ve noticed that my COC ROI does not seem to be taking this income into account and is actually negative. Any idea of why this may be happening?

@ellochello Re the CoC calculation, do you have any “cash in” left in the deal?

If you’ve refinanced your entire cash position out of the asset, then the second “C” of “CoC” doesn’t really exist, which makes the calculation impossible/irrelevant. That may be why you’re seeing a negative number for CoC.

@devin I am looking for some further detail around how to the cash out refi should be recorded.

Using an example where there was an existing loan of $100,000 which was then refinanced to $150,000 with $5,000 in fees. So the existing $100k was paid off and owner received $45k.

  1. What is the amount that goes under “Money In” to “Mortgages & Loans > Principal Payments.”? Just the $100k needed to pay off the existing? Or something else?

  2. How should the cash to the owner be recorded?

  3. Should the $5 in fees be recorded somewhere?

  4. Any other transactions that should recorded for this aside from adding the new loan for $150k.

Thanks

@muswei We would recommend something like the following:

  • $50K (before fees) net cash out amount to “Mortgages & Loans > Mortgage Principal” as “Money In”
  • $5K loan fees to “Capital Expenses > Loan Costs” as “Money Out”
  • Clear old mortgage and set up new mortgage for $150K as discussed in earlier reply above

@devin You mean to setup new mortgage for 150K? It must be, as otherwise, mortgage payments wouldn’t be correct, right?

Also, could you please elaborate on how Stessa figures out the new net down payment in the property? For example, with 100K loan, I may have 75K down payment and when I refinance and pull 50K out, my net investment drops to 25K. So, how does Stessa figure this out?

@srinivas.mudireddy Yes, $150K for the new mortgage, thank you for catching that detail. I’ve updated the prior post.

Re “net down payment,” are you referring to how Stessa adjusts the “Cash In” figure after a refinance?

Oftentimes, you make an investment, and refi out more than the initial cash investment. It would be great if the cash on cash metric was calculated based on the initial cash invested as opposed to being negative

@prabtej I’m not sure the cash on cash metric is relevant once you’ve refinanced out and no “cash” remains in the deal. At that point, I think return on equity (ROE) is a more appropriate metric going forward. I’d be interested to know how other investors feel about this…?

Also see the related Cash on cash metric discussion on the Wishlist.

I had this same question, so I came across this thread. Devin, I like your suggestion of categorizing as “Mortgage Principal”, but in this case, it counts the full amount as cash flow. I chose to do it this way and am wondering what people think about it:

Received a cash out refi for $47,000 and split it up like this
$6,120.44 went to closing costs
$12699 went to capital expense(refund) to balance out the rehab cost
and the remaining $28,180.56 went to Transfers>owner contributions, as this was the original source of the money.

I played around with a few ways and ultimately the COCR was the same. Let me know what you think of this logic or if there is a better way do it.