Starting My Real Estate Journey: How Can I Leverage a Paid-Off Townhome?
11 Replies
- Rental Property Investor · Philadelphia, PA · Member since 2021 · 782 posts · 505 votes1y
@Hank Bank - Sounds like you have a solid property! Not sure if you have a place to live/call home, but by your content I'll assume you have a place to live and don't need to townhome yourself. If that is true I think you're on the right track. I would suggest you do both of what you suggest - meaning get either a new mortgage (more conservative route) or HELOC on the townhome and use those funds to buy your next investment property. However, before you do so you should ensure that your revenue from rental income covers ALL your property expenses in the townhome, including mortgage, taxes, insurance, maintenance/repairs, vacancy, property management, etc... You'll want to make sure it cash flows each month. Also, before you buy another property you'll want to determine your ideal next property - meaning, will it be a "rent ready" house, a major renovation project, or somewhere in between. You'll want to stretch yourself, but not get in over your head. If you're not sure of you preferred direction with your next property I would invest in understanding investing more thoroughly and read 5-10 books as well as speak to other experienced investors. Good Luck!
- Lender · TX · Member since 2024 · 308 posts · 197 votes1y
Hi Hank, congrats on having a fully paid-off property! I'd start by figuring out the cost of the cosmetic updates and seeing how much you could rent it out for. If the rental income looks solid, it could be a good idea to rent it out for some steady cash flow. A HELOC or cash-out refinance is definitely worth exploring if you want to free up capital for more investments, but make sure it fits your goals and comfort level. You're in an great spot to get started—good luck!
Quote from @Greg Kasmer:
@Hank Bank - Sounds like you have a solid property! Not sure if you have a place to live/call home, but by your content I'll assume you have a place to live and don't need to townhome yourself. If that is true I think you're on the right track. I would suggest you do both of what you suggest - meaning get either a new mortgage (more conservative route) or HELOC on the townhome and use those funds to buy your next investment property. However, before you do so you should ensure that your revenue from rental income covers ALL your property expenses in the townhome, including mortgage, taxes, insurance, maintenance/repairs, vacancy, property management, etc... You'll want to make sure it cash flows each month. Also, before you buy another property you'll want to determine your ideal next property - meaning, will it be a "rent ready" house, a major renovation project, or somewhere in between. You'll want to stretch yourself, but not get in over your head. If you're not sure of you preferred direction with your next property I would invest in understanding investing more thoroughly and read 5-10 books as well as speak to other experienced investors. Good Luck!
Thank you for your reply. Do you have any book recommendations?
Quote from @Julia Lyrberg:
Hi Hank, congrats on having a fully paid-off property! I'd start by figuring out the cost of the cosmetic updates and seeing how much you could rent it out for. If the rental income looks solid, it could be a good idea to rent it out for some steady cash flow. A HELOC or cash-out refinance is definitely worth exploring if you want to free up capital for more investments, but make sure it fits your goals and comfort level. You're in an great spot to get started—good luck!
Thanks for replying! I do want to rent it out I’m just trying to decide how to use this to maybe get another property while also renting this one out. Rent in this area is pretty good so I believe renting is the best option. I just need to see how to turn rental property into a second property.
- 1yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
@Hank Bank BRRRR is probably want you want to do.
Buy, Renovate, Rent, Refi, Repeat.
Before you go all in and either find out you don't like being a landlord or you make costly mistakes, start with just the next one.
You'll have some challenges with tapping the equity in the townhouse:
1) What loan amount can you qualify with your credit & income?
2) If you do owner-occupied cashout refi for best rate, you technically have to live in the home for 12 months before renting it out.
* Some responders here may suggest not worrying about that and renting it out anyways. Nothing illegal about doing that, but if caught, the lender may call the loan due and if you don't correct the situation or pay the loan off, they willstart mortgage foreclosure.
3) You could also go the HELOC route to tap the equity in the home, but the 12-month owner-occupancy will also apply AND the interest rate on the HELOC will fluctuate with the Fed Fund Rate.
4) You could do a cashout refi as an investment property, but that will be at an interest rate 0.5-1% higher than owner-occupied rate.Suggest you meet with 2-3 lenders to explore your options about the above.
Once you have access to funds, recommend you buy a 2-4 unit with 20-25% down.
- You can buy owner-occupied, live in one unit, and fix up and rent the other unit(s).
- If you're handy, recommend buying a property in the worst condition you can tolerate. There will be less buyers to compete with => better price for you!
- You can buy using FHA 203(k) loan which allows you to finance repairs into the purchase mortgage.If you find you like being a landlord, you can BRRRR a property every year.
You can also start BRRRing rentals w/o planning to live in them.
Logical Property Management4.9469 Reviews - Rental Property Investor · Philadelphia, PA · Member since 2021 · 782 posts · 505 votes1y
Quote from @Hank Bank:
Quote from @Greg Kasmer:
@Hank Bank - Sounds like you have a solid property! Not sure if you have a place to live/call home, but by your content I'll assume you have a place to live and don't need to townhome yourself. If that is true I think you're on the right track. I would suggest you do both of what you suggest - meaning get either a new mortgage (more conservative route) or HELOC on the townhome and use those funds to buy your next investment property. However, before you do so you should ensure that your revenue from rental income covers ALL your property expenses in the townhome, including mortgage, taxes, insurance, maintenance/repairs, vacancy, property management, etc... You'll want to make sure it cash flows each month. Also, before you buy another property you'll want to determine your ideal next property - meaning, will it be a "rent ready" house, a major renovation project, or somewhere in between. You'll want to stretch yourself, but not get in over your head. If you're not sure of you preferred direction with your next property I would invest in understanding investing more thoroughly and read 5-10 books as well as speak to other experienced investors. Good Luck!
Thank you for your reply. Do you have any book recommendations?
There are hundreds if not thousands out there, but there are many by Bigger Pockets that are excellent for newer investors. I would recommend the three below and then go from there!
The Book on Managing Rental Properties | Book for Landlords – BiggerPockets Bookstore
David Greene Best-Sellers Bundle – BiggerPockets Bookstore
Rental Property Investing | Best-Selling Business Book – BiggerPockets Bookstore
Quote from @Drew Sygit:
@Hank Bank BRRRR is probably want you want to do.
Buy, Renovate, Rent, Refi, Repeat.
Before you go all in and either find out you don't like being a landlord or you make costly mistakes, start with just the next one.
You'll have some challenges with tapping the equity in the townhouse:
1) What loan amount can you qualify with your credit & income?
2) If you do owner-occupied cashout refi for best rate, you technically have to live in the home for 12 months before renting it out.
* Some responders here may suggest not worrying about that and renting it out anyways. Nothing illegal about doing that, but if caught, the lender may call the loan due and if you don't correct the situation or pay the loan off, they willstart mortgage foreclosure.
3) You could also go the HELOC route to tap the equity in the home, but the 12-month owner-occupancy will also apply AND the interest rate on the HELOC will fluctuate with the Fed Fund Rate.
4) You could do a cashout refi as an investment property, but that will be at an interest rate 0.5-1% higher than owner-occupied rate.Suggest you meet with 2-3 lenders to explore your options about the above.
Once you have access to funds, recommend you buy a 2-4 unit with 20-25% down.
- You can buy owner-occupied, live in one unit, and fix up and rent the other unit(s).
- If you're handy, recommend buying a property in the worst condition you can tolerate. There will be less buyers to compete with => better price for you!
- You can buy using FHA 203(k) loan which allows you to finance repairs into the purchase mortgage.If you find you like being a landlord, you can BRRRR a property every year.
You can also start BRRRing rentals w/o planning to live in them.
This sounds like what I had my mind on. I need to do some research on what credit score I need to actually begin this process
- Residential Real Estate Agent · Atlanta, GA · Member since 2009 · 381 posts · 134 votes1y
Don't be so quick to indebt your paid off townhome until your learn creative financing and review all your options.
Quote from @Ericka Parrott:
Don't be so quick to indebt your paid off townhome until your learn creative financing and review all your options.
Thanks. I’m trying to research now
Quote from @Drew Sygit:
@Hank Bank BRRRR is probably want you want to do.
Buy, Renovate, Rent, Refi, Repeat.
Before you go all in and either find out you don't like being a landlord or you make costly mistakes, start with just the next one.
You'll have some challenges with tapping the equity in the townhouse:
1) What loan amount can you qualify with your credit & income?
2) If you do owner-occupied cashout refi for best rate, you technically have to live in the home for 12 months before renting it out.
* Some responders here may suggest not worrying about that and renting it out anyways. Nothing illegal about doing that, but if caught, the lender may call the loan due and if you don't correct the situation or pay the loan off, they willstart mortgage foreclosure.
3) You could also go the HELOC route to tap the equity in the home, but the 12-month owner-occupancy will also apply AND the interest rate on the HELOC will fluctuate with the Fed Fund Rate.
4) You could do a cashout refi as an investment property, but that will be at an interest rate 0.5-1% higher than owner-occupied rate.Suggest you meet with 2-3 lenders to explore your options about the above.
Once you have access to funds, recommend you buy a 2-4 unit with 20-25% down.
- You can buy owner-occupied, live in one unit, and fix up and rent the other unit(s).
- If you're handy, recommend buying a property in the worst condition you can tolerate. There will be less buyers to compete with => better price for you!
- You can buy using FHA 203(k) loan which allows you to finance repairs into the purchase mortgage.If you find you like being a landlord, you can BRRRR a property every year.
You can also start BRRRing rentals w/o planning to live in them.
Do you have any resources on this strategy that you would recommend? I think this is the method I would like to go as it fits in line with what I envisioned.
- 1yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
@Hank Bank where are you located?
Probably better to DM me so we can better connect...
Logical Property Management4.9469 Reviews
Join the conversationCreate a free account to reply, vote on answers and follow this thread.