New investor looking for financing advice

[Annie Weeks]

Hello! I recently made the decision that I am ready to jump into real estate investing, and I am very excited. I have been working on educating myself through the podcasts, forums, books, Youtube videos, talking with friends and family who have real estate investments, etc. I have been analyzing deals in my area and have looked at a few houses with a realtor (friend) to get an idea of what is out there. I live in St. Paul, MN and have really been focused on my area and the surrounding suburbs because I feel very comfortable with the market here and plan to self-manage starting out.

My initial plan for financing my first investment was to do a cash out refinance of my home and use that money as a down payment. We purchased a foreclosure in 2013 and have a pretty significant amount of equity as the market in our area has skyrocketed. Just a little more background, I do have an emergency savings fund, which could be used as cash reserves (is this even a good idea?), as well as a HELOC, which could be used for any initial rehab/repairs. However, as I continue to learn, I am wondering if cashing out on my equity is the best option, or if I should pursue another option, such as private lending.

There is a duplex in my area that I have had my eye on for the last week. For whatever reason it is not selling, which makes me think I could go in with a low-ball offer. Obviously, I will need to have the cash on hand before making an offer, so any suggestions, advice, or other insights would be much appreciated! Thanks!!

[Evan Kraljic]

My first questions would be how much is on the HELOC and what is the current interest rate on your mortgage?

If you haven't refinanced in the last couple years, a cash out refi could be a good idea with how low interest rates and you'll be able to pull that equity out tax free. But if you already have a competitive interest rate and if most of your equity is already accounted for with the HELOC, I'd maybe just skip the refi and use the HELOC as a down payment on the rental.

Also something to consider, if you refi with an owner occupant loan (better interest rate) you'll need to live there for another year. Which is fine as long as you don't plan to house hack your first investment property... you didn't mention that so I'm assuming you won't be, so hopefully you'll have enough with the HELOC or cash out refi to afford the 25% down payment here.

I'm really just spitballing and giving out potential strategies here, but the real recommendation is to talk with a mortgage lender who can put actual numbers behind what I'm throwing out and they can give you the best way to proceed. @Tim Swierczek is one of the best and I bet he'd be willing to hop on a Zoom call with you to sort this all out. Good luck!