My first REI decision

[Ryan Cole]

Hi All!

Wow, what a cool community. I've been looking through BP/listening to Podcasts for several months now, and am finally starting my REI journey. I've come to my first decision I need to make, and I'd like to make a solid one to start out!

Here is my situation. The only property I own is my primary residence, but am looking at my first rental property. I have a single family home, and I owe 196k on a 236k loan with 3.75% interest. My first rental property is going to be a single family home in the same area (it is one of the hottest markets in Florida, our house appreciated 14% in the first 12 months). 

The property I am looking at is a 200k 3-2 (new construction). I'd like to do a conventional fixed rate loan. Here are my financing options:

1. Use majority of my savings (40k)

2. Refi-cashout my house (I've shopped a rate from my current lender, who estimated the appraisal at 270k and could get me about 20k minus closing costs. Only issue, they can't get me an interest rate lower than 4.4%. I prefer not to alter my solid interest rate I already have.)

3. HELOC

4. Home Equity Line of Credit

5. Combination of option 1 and option 3 or 4. 

What do y'all think? Thanks for the advice in advance! I can't wait to get more active in this community and hopefully as I gain knowledge be able to help others out as well.

[Ali Boone]

Well if you are talking about leveraging to buy that rental property, way more important than how you decide to leverage it (via what means) is the numbers on the property. If you buy that kind of property for $200k, how much will you be able to get on rent? The reason it's important, other than to ensure you are actually going to cash flow on it, is because if you have a mortgage you want to make sure the rental income can cover that mortgage and your expenses. Otherwise, you are paying on the mortgage out of your pocket. If you insist on doing that (a lot of people do in order to be able to invest where they want), then you'd want to find the absolutely cheapest way to leverage buying that property.

Make sense?