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Updated about 5 years ago,
Buying new primary home and renting current
Hi BP! Sorry for the lengthy post.
Hoping for suggestions on how to best strategize on funding an 80k, 20% downpayment for a new primary residence and renting our current house.
I've been following the forums and listened to many podcasts and while not yet an active investor have been planning to become a buy and hold landlord when moving to a new residence and renting the current one within the next 2 years. Renting our current house would be a great option for cashflow after rents and purchase price have gone up 75% after our purchase 6 years ago.
Current house would rent for $2k/mo with about $800 cashflow after all costs, upkeep, management costs considered, though I plan to manage it myself.
Option 1) Withdraw 50k from Roth IRA and 30k HELOC (currently at 5%). Benefit is flexibility on purchase date for when we decide to move and keeping our low 3.5% financing but also locking 100k of useable equity in our rental, but also much higher cash flow. Downside: Taking money out of retirement savings.
Option 2) Get a new higher balance HELOC for 80k downpayment from current residence. This also allows flexibility of purchase date (after 1 year seasoning) Dowside: higher adjustabe rate interest that will take a while to pay off.
Option 3) Cash out refi on current residence for downpayment. This brings the benefit of locking in a fixed rate (1+% above current) and the new loan will be fully counted as a an expense against rental income vs the first 2 methods. Downside: 1 year seasoning paying interest on the cash out loan while waiting 1 year seasoning before we purchase and move into the new residence. Also, lower cashflow on the property ($200 vs $800).
Option 4) Open to other suggestions...
I'm honestly a little torn between these 3 methods as we have been aggresively saving 25% of our income in Roth IRA and 401k retirement for the last couple years so I don't have the 80k cash saved for the new downpayment. Looking for advice. Each has it's pros and cons. I'm maybe overanalyzing but it's a tradeoff from liquidity/retirement vs interest rate vs income generation.
Thanks for your suggestions and input! I know for many active investors this is a silly question as you have your processes aligned and don't flinch at these things but I plan to rinse/repeat maybe every 5 years as I suspect we will move to another residence again after a while.
Reasoning: We are wanting to move into a better school system to provide better opportunities for our child but suspect we'll move out of it again 10 years later when our youngest graduates from high school. We may invest in other rentals during the interim.