Seeking Advice - Need to move, tight on cash, but don't know what to sell or hold!

[Jason Lohse]

Hi!

I work remotely in IT. I'm fairly new to REI. My goal is to continue to purchase properties and build wealth.

My wife and I recently moved from GA to CO almost a year ago. We purchased a home here in CO near Fairplay where we currently live. We still own our GA home and it's currently rented. It was our primary residence for a year and has been rented for a year.

My wife just got a dream job in Denver, so we are planning to move to the city and hopefully purchase. Rent is so high, it seems like purchasing is the better option at this point. For now, my wife is staying with friends during the week until we can figure out the best next steps. We are tight on cash but could afford a small down payment, $40-50K. Purchasing does require renting our CO house in order to qualify for another loan. 

Our GA cash flows about $1K after all expenses, has about $180-200K in equity, mortgage loan at 2.875% rate. I didn't get a HELOC before we started renting. Out of dozens of conversations with lenders, I can only find one bank that offers HELOC's for rentals. I could only get out about $70K, and have thousands in closing costs, with a less-than-desirable rate. We could 1031 the GA house for a new home in Denver, but then I lose cash flow and a good first rental property.

Our CO home value has dropped about 5% in value and comps in our area are low, so we would lose money trying to sell this house in Fairplay. We are having a hard time finding someone to lease it. Zillow lease rate and other lease rates around us are about $1,000 under what we need to cover our mortgage payment. With our two incomes, we can cash flow the Fairplay home and get a small home in Denver, but we would be really, really tight each month - as long as we can keep renters in our GA home. 

I know the housing market, economy, and future rates are hard to get a handle on, so I don't want to make a dumb mistake and end up losing everything we've sacrificed for, with a wrong decision right now. I'm willing to take a risk, but I don't want to put us in danger any further financially.

Thanks in advance for any advice or direction. I truly appreciate it!

[Stacy Rozansky]

Hi Jason,

You explained your situation really well, so I am going to try and address each part.

1. $40-$50K is enough for a down payment for a house in Denver. Potentially even, if you and your wife are open to it, to get you a place with rental capabilities on site to help you off-set a good chunk of your mortgage.

2. You should definitely still be able to get an investment HELOC for minimal closing costs. I know of local places in Colorado, but unsure if they would work for a home in Georgia. I can send you some contacts to see if they know more. Terms will not be as good as a HELOC on your primary but should still be worth it. Unfortunately as others have said 1031 has to be for a "like-kind" trade investment to investment.

3. Is your house in the town of Fairplay or outside? That will determine the short term rental rules, if you choose to go that route (which will help your cash flow, but is more work). Inside town limits has its own rules vs. outside follows Park County rules. I have property in Alma and prices are still going up, where are you getting your home valuation from? I would be happy to run a CMA (Comparative Market Analysis) just to be sure on valuation. I agree that the rental situation could be a seasonality issue and you might want to consider a 3 month lease for summer and 6-9 month for someone that wants to be out there for the winter months. Although, most lenders will only be able to use a 12 month lease to help you qualify for your next property so that is also something to take into consideration on your search.

Hopefully that is helpful! Always happy to chat further

Best,

Stacy