Cash Out Refi, Sell, or Hunker Down

[Alex Jozwiak]

Hi All,

Newer real estate investor, long time listener. I apologize in advance for the length of the post..

Looking for advice on my current situation. I purchased my first property, a duplex(3/1 upstairs & 3/2 downstairs - whole unit roughly 2000 sqft) in Savannah, GA in May of 2021. Purchase price $240k with a 203k FHA loan so all in loan amount was about $270k, negotiated closing costs coverage so my total cash to close was about $10k - interest rate of 2.75%. 203k loan was mostly for exterior renovations and I put about $12k out of pocket into renovating the upstairs unit. I house hacked & lived in upstairs unit for 1 year (collecting $600/month from a friend/roommate) and $1200/month initially from downstairs tenant (up from $950). My all in mortgage on the property with is about $1720 but I pay $1800 flat/month.

I needed to relocate to Atlanta for work in early 2022 so I wanted to pull a Heloc out on this property to purchase a primary up in Atlanta. Appraised in January of 2022 for $350k and was given a $41k heloc at 4% fixed interest (which I guess Is a home equity loan as it is a 3 year term). Had some unexpected expenses come up before finding a property (vet bills & unexpected tax bill due) which took up about $25k of the heloc).

As we all know the market was crazy early last year, but I found a property which I saw great potential in with some improvements needed. It was a 4/2 SFH with 3/1 upstairs and an in-law suite downstairs with a separate entrance that I planned to upgrade & list on AirBnB for mid term rentals. It appraised for $331k but agreed upon purchase was $340k. I closed in June 2022 and began renovations. I now have the in law suite rented at $1400/month beginning in November (term ending at the end of Feb 2023), and I have two roommates living with me now. Total mortgage on this property is $2100 (5% interest rate on a 5% conventional mortgage) and I am receiving $1600 from my roommates so $3k total/month. I spent about $40k on necessary upgrades (electrical, plumbing, & cosmetics). Given the market recently, what I spent on rehab likely is breakeven on its current worth - so a refi on the ATL property wouldn't make sense.

My Savannah duplex has both units rented, $1500/month upstairs(until August 2023) & $1350 downstairs (I extended downstairs tenants original lease until end of February 2023) - I am also considering converting the downstairs unit to mid term rental when the tenant leaves as a STVR property manager showed me some comps that it could go for $2500-3500/month on mid term (the area it's in is not zoned for STVR). 

I partnered with my Dad and utilized both his Heloc & my own for purchase and renovation. My Heloc is currently at $39k (4% fixed) and my Dad's has a remaining balance of $38k w/ a variable rate (which is sitting right now at about 9-10%). I also still owe about $8k for materials which are on my Lowes & Home Depot CC's.

I have a good W2 job (I'm in medical device sales) and although both properties are cashflowing well, I am nervous I am a bit over-leveraged and would like to change that - especially as I would like to get more into fix & flip/ BRRRR this year. I currently have a great flip/BRRRR deal a wholesaler brought me 2 days ago here in Atlanta - but my Dad (silent capital partner) wants to get his heloc paid off first (very understandable) before diving into anything else.

When speaking w/ Rocket mortgage mortgage a few months back about cash out refi - the closing costs were somewhere close to $27k which didn't seem advantageous at all. Similar comps on the duplex have recently sold between $420-450k. 

Sorry for the lengthy post, I just wanted to include as many details as possible - if you are still with me reading this, I appreciate you and any advice you may have!

For the Savannah Property, I am wondering should I look towards cash out refi w/ DSCR or a credit union, potentially sell the property(which I would like to avoid), or just hunker down and continue paying the high interest on my Dad's Heloc w/ cash flow & commissions?

Thank you!!