Is it worth to get cash refinancing to buy another property ?

Question

Bought a 2 flat 9 years ago in Chicago,  for 160k with 3.5% down. Now it's worth over 360k. I can get about 145k cash from it. Would it be worth investing that into a rentable 2 bedroom condo? I can get about 350 per month income from it probably.

Michael J Scanlon · Answer

@Alex Tokmazeyskiy

Its all very nuanced but likely yes, it’s worth it. You’d do well to buy even bigger than a condo and maximize your leverage. But you would have to analyze your total cash flow and return on investment versus your current return on equity. But on top of just simple ROI and ROE, you need to calculate your net worth returns from writing off interest expense, principal paydown on two properties, appreciation on two properties, etc.

Jonathan Klemm · Answer

@Alex Tokmazeyskiy - I am with @Michael J Scanlon why not be thinking something a little bigger than a condo?  $145k cash can go a pretty long way here in Chicago depending on which neighborhoods you are looking to invest in?

You should have purchasing power-up in the $500-$600k range, some of the western suburbs like Cicero and Berwyn have decent cash flowing multi-units in that price range.Was there a particular reason you were thinking of buying a condo?

Alex Tokmazeyskiy · Answer

Thank you guys for your replies, very helpful. Reason I was thinking of a 2 bedroom condo, is to pay cash for it and have less of a headache compared to dealing with an old building. Condos are easy in my opinion.

Alex Tokmazeyskiy · Answer

Thank you ! Multi unit is probably more profitable, but in my experience dealing some of the large item repairs in older buildings, at times is discouraging. My 2 flat in the City needed quite a few big repairs lately.

Crystal Smith · Answer

Not a big fan of renting condos but if you can find a condo for $145K w/ an HOA that is investor friendly then I say go for it.

John Warren · Answer

@Alex Tokmazeyskiy all of the suburbs you mentioned are strong rental markets. I have several clients who own six units in those areas and it is very easy to find renters. The schools are strong and employment opportunities are there. You should have virtually no vacancy in those areas if you price well and have a good product to rent.

Alex Tokmazeyskiy · Answer

Jonathan, yes definitely makes sense. I was also wondering how is the rental market in the Suburbs like ; Palatine, Wheeling, Hanover Park etc.? In Chucago I never had an issue locating tenants, not too sure about suburbs.  Thank you

Jonathan Klemm · Answer

I'd say you aren't wrong in your line of thinking at all - Paying cash and getting cash flow right away is extremely less risky and could be the right move depending on your situation and risk tolerance.

I think what most of us who commented above are thinking - is that one of the best things about real estate is being able to leverage OPM (other peoples money) and in this case, we are talking about leveraging the bank's money (and yours).  Interest rates are still at historic lows so why not take the nearly free money (2-4% interest) and instead of buying one condo cash for $150k purchase 5 condos with 20% down (or a multi-family same concept) and leverage that $150 k across 5 units instead of one.  Not to mention if you use use FHA you'll having enough more cash free for additional investing.

Personally, I am not trying to sway you one way or another because we are all in different positions - I just wanted to clarify my thought process a little more.

Chicago is a great market for real estate because you can have a huge range of price points, so I am sure you'll find the right property for you that makes the most sense.

John Warren · Answer

@Alex Tokmazeyskiy why not look at town homes? In your neck of the woods a nice town home can be very low maintenance, and if you have a decent HOA it provides the same level of management ease as a condo with more upside in the rents.

Paul De Luca · Answer

@Alex Tokmazeyskiy

Agreed with @Michael J Scanlon and @Jonathan Klemm. Likely the best use for your cash will be to get a 3-4 unit. Refinance to a conventional loan, house hack again using FHA, AND still plenty of cash to buy another property.

Is it worth to get cash refinancing to buy another property ?

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