Investing question

[Mark Stone]

Hey everyone,

I have a  question in regards to where to invest next.

I currently have a triplex and am trying to decide on whether to focus on increasing its cash flow via removing my PMI or moving on to purchase another one.

Someone recently stated they don't invest in rental properties unless they are getting an IRR of 15%, and they seemed like a much more advanced RE investor then myself so I am going to assume that my IRR is 15% on this property I have at best.

I currently have PMI for about $150/month. If I can refinance to get rid of the PMI (bc I believe I have 20% equity now), and could refinance for say $5000 on my $230k property (not sure if this is an acceptable estimate on closing costs on a refinance for my property). Wouldn't that save me $150x12 = $1800/yr and therefore I could look at my return on that investment as 36% annual return ($1800year/$5000), and therefore this would be a wiser option then focusing on a second property until I remove my PMI?

Please let me know if this thought process is deeply flawed or has some logic behind it!

Thanks in advance!!!

[Scott Hollister]

Hey  @Mark Stone,

1. FHA loan, still owner occupied? (What's your interest rate?)
2. If I were in your position I would refi, $1800 year x 30 years = $54,000 dollars. Even though you have tenants "paying" this fee I think you can justify paying the refi fees, and finding a higher and better use of the PMI fees. (you could also finance them in as well.) Don't forget they will require an appraisal, check to see if its lender paid.
3. Refi sooner than later if this is your choice and it works for your situation. Im getting 3.5% owner occupied in CT. Some call that free money... (As opposed to high teens back in the day)
4. What works for me is the BRRRR strategy. Here @Jeff Villeneuve explains it the best IMO.

Here are the steps with explanations:

1 - Get cash together.
2 - Find a RE Market that will allow you to use your cash ONLY for all costs (buy/rehab/etc...)
3 - Find a lender that will do REFI loans on Rentals...and what their terms are. The usual terms would be 75% of the ARV (after repair value).
4 - Find a property, in the Market you found, that will allow your to -
a) Buy/rehab cost at less than the terms of your lender for refi (75% or less using the lender above) & where that total cost is not more than the available funds you have on hand.
b) Buy/rehab the property
5 - After the "seasoning period" required by your lender, get the property refinanced.
6 - Take the cash from the refinance (this is why you use cash to start with...and not a loan) and repeat Steps #4 - 6...as many times as you want/can.

Note: After a certain point, or even in the beginning, you may need to involve cash partners to get the needed cash together, or a credit partner if you can't get approval for the refi's.

For me I didn't have the cash to put down, so I used a hard money lender. They required "skin" in the game and I didn't have the 20k to put down, so I borrowed that too. I used a Home Equity Line of Credit to put down on the property using no money of my own, just sweat equity. If you're in a better position financially where you can use all your own cash, go for it. If not, let the creative process begin!