Real Estate Agent · North Miami Beach, FL · Member since 2015 · 55 posts · 16 votes
10y
If it ain't broke, don't _______________________?
If you have successfully managed to maintain your FHA payments and it has cash flow then why change a formula that has worked for five years? Instead look to your next deal that will cash flow. Because when you refinance it will alter your ability to pay, it will lower your largest credit lines history, and it will increase your interest rate on your new loan. Meaning, you will loose more money over time.
Just an opinion and remember your MIP will end after 15 years of ownership or at 78%ltv.
So you could pay down the FHA to meet this threshold, and buy the second property. It depends on the dollar amounts you are referencing but simply. I would not refinance the first FHA loan.
Investor · Phoenix, AZ · Member since 2015 · 5 posts · 0 votes
10y
Zack thanks for the reply.
I'm really look at buying the Multi with FHA and moving to meet the requirements. I look at my house as a "liability". With a refi, renting it out and buy Multi(FHA), wouldn't I be living for free or less out of my pocket?
I lose my cash at this time, but gain better cash flow monthly. Correct me if I'm wrong.
Investor · Springfield, MO · Member since 2016 · 88 posts · 29 votes
10y
@Kraig A. We were in the same boat as you. Here is what we did:
Primary residence that will turn into a rental in a year. Purchased 5 years ago for $100,000 @ 4.5% FHA loan. Refinanced it for 30 years @ 3.75% (since it's still our primary we got a better rate) and it appraised for $118,000, giving us our 80% LTV needed to drop PMI. We are saving $148/month by doing that, which will increase our cash flow next year when we turn it into a rental. Is this going to be the best cash flowing property? No, but i believe it's still a good investment because when I purchased it I put about $1,500 cash down on it. Refinance closing costs were rolled into the new loan and PMI I was dropped. The COCR is pretty good if you ask me.
If it were me, I would buy more property. Seeing the Cash on Cash Return formula is what sold me on investment property. If you're not familiar with it, it goes something like this:
COCR = Annual Cash Flow / Total Dollar Investment
Say you have $80,000 cash sitting in your bank account. You have narrowed it down to two options:
A) Payoff your house because that's conveniently what you owe on it. So now you have no money coming in and no money going out and in 30 years you'll have that one house that may or may not be worth the same, but probably pretty close. No tax deductions either.
B) You take that same $80,000 and you buy five $80,000 investment properties putting 20% down on each($16,0000 x 5 = $80,000). Say they each give you a 20% COCR. That would be cash flow of around $3,000 per year. You have five of those, so over 30 years they will pay you around $450,000 in cash flow. Also, at the end of that 30 years you will have $400,000 in property, instead of your one $80,000 house you decided to pay off, saving you maybe around $225,000 over 30 years? That $80,000 has paid you $15,000 per year and given you $400,0000 in property. Now don't get me wrong there are A LOT of other expenses and things to factor, but just looking at it from an income point of view, it looks pretty good.
Investor · Phoenix, AZ · Member since 2015 · 5 posts · 0 votes
10y
I will be paying down the note or writing a check for 18k, this with a refi would be for investor or 25% to rent it out and will allow me to use the FHA loan again on a Multi.
It is very very hard to get more than one FHA loan, some underwriters say it can't be done.