I don't know what to do.....

Starting Out
5yFollow

I don't know what to do.....

Roderic Baker
Denham Springs, LA · Member since 2017 · 6 posts · 0 votes

Hey guys I'm in a bit of a pickle, I'm finally ready to invest in real estate, part of me wants to sell but if I can refinance and move someone in that'll be cool too. Here's a little history I bought my home back in 2014 as a foreclosure at 159k, I currently owe like 123k.  My real estate agent believes I can get 270-280k with how the market is now. It's in a great neighborhood and the schools are good also here in Denham springs La, my agent and I have history we actually went to High school together. I consider him a good friend, he actually helped me find this home in 2014, he also invests in real estate. He told me that either way I go its a win. My plan was to take the money from selling the house and use it to pick up on some of these foreclosures that's about to hit the market, but if I can refinance the house and use my current home as my first investment property that would be awesome. When I bought the home my interest rate was/is 4.25% he told me if I refinance at 2% my note would go from $1200 to around $800, and I could probably get around 1600 in that neighborhood. I'm actually moved out of the home now and I've been doing some renovating. Any suggestions will be appreciated. Thanks.

0Reply
45 views

5 Replies

Jump to latestLatest
  • Jason WrayPro Member
    Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
    5y

    Roderic,

    Do not move out yet keep this home as your primary until you finish the cash out refinance. If you do not live in the home as a primary then your going to be capped at 75% LTV cash out. But this would be a great start to pull out some cash at a higher LTV and still low rate to buy another home. Buy another primary home and basically keep repeating this process to become a successful REI.

    [email protected]727-637-4289
    0Reply
  • Jon K.
    Rental Property Investor · Perry Hall, MD · Member since 2016 · 592 posts · 608 votes
    5y

    When you find out what lender will let you do a cash out refinance on an investment property at 2% interest please let me know.

    First, deal with what you actually know to be true vs speculative. You have a house that is worth 270 to 280k if your agent's comps are accurate. That means you can potentially get a mortgage for up to $210,000 (75% of 280k). If your credit is good and it's titled in your personal name you're probably looking at mid 3's to high 3's on for a 30 year fixed rate mortgage (I haven't checked fannie/freddie rates lately so trust but verify). I don't know what your taxes/insurance premiums are but that's $942.99 at 3.5%. If it rents for $1,600, after reserves (I use 15% of gross as a rule of thumb) that leaves $417.01. If you then subtract taxes and insurance, how well does it cash flow? And how much cash flow do you personally want per door for your rentals? That is a subjective number, only you can determine that.

    I personally don't consider a property a good rental if it does not cash flow well (minimum of $350/month for sfh) while fully leveraged. By fully leveraged I mean I did a cash out refinance up to the full 75% of the ARV after purchase and remodel.

    Now, deal with what is speculative. Is a tsunami of foreclosures about to hit the market? Maybe but I contend it really does not matter. Is it good to have access to capital in general to buy good deals as you find them? Definitely. That's what matters.

    So what is the best course of action?

    You can refinance without taking cash out. That will drop your payments for sure (down to $552/month at 3.5% before taxes/insurance). And at that point you're probably cash flowing pretty decently. But that doesn't give you capital. What you can do after that is establish a line of credit in second position that will then give you access to the equity in your house and you will only have to make payments on that line of credit when you actually find a deal to use it on. Check local credit unions and network with other local investors to find good options for that. It's not uncommon to be able to get a line to let you access anywhere from 90 to even 100% of your equity.

    Be aware that there is risk involved with that. Most HELOCs come with variable rates so it may get more expensive to use with time. And paying interest to use your own equity is more expensive than using cash. Cash you would have if you just sold. Also if you default on that loan the lender can foreclose on your house.

    So is it the best? Meh, you have to decide that. Food for thought though. I hope this helps.

    0Reply
  • Lynnette E.
    Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
    5y

    $1600 in rent each month for a house valued at $270k tells me no.  I like to follow the 1% rule, but know it does nto work in all markets.  I barely works for your foreclosure price and that is before rehab.

    0Reply
  • Roderic Baker
    OP
    Denham Springs, LA · Member since 2017 · 6 posts · 0 votes
    5y

    Thank all of ya'll for the advice.

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    5y

    Sell. sell and sell.  Look at how long it will take you to accumulate cash flow where the total will equal the amount you can have right away from a flip.  Now look at that money, and use it as 20% DP's on more than one property, and see what your new total CF ends up being.

    When you refi, you cam take the extra cash from the and use it to buy one more property.  However, even though you are keeping the initial property, that CF from that property will go down.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free