Should I Sell or Refinance?

[Darina Pogodina]

Hi BP friends, 

I have 2 family house and I am trying to make a decision whether to refinance it or sell it. It is located in Worcester, MA and currently financed via FHA. I bough it a year ago. After all expenses it cash flow $500. If I list it now, I can probably sell it for $150,000 and after all costs make about $24,000. Should I make money and buy something larger or keep it and continue cash flow.

Basically, I can make this $24,000 in about 4-6 years or may be I could buy something that can cash flow $1,000 so I will make this money back twice as fast. 

What would you do ?

Thank you, 

Darina 

[Brent Coombs]

@Darina Pogodina, your answer would have been easier to answer yourself, if you had asked it before even buying it! It almost sounds like you did have that option in mind, but, the answer still relies on information only you can find out. Remember, you'll always need to live somewhere (which gets you zero cash flow for that portion), so, it's basically balancing whether you expect to make more profit in future by buying for appreciation or cash flow. Yes, everyone wants both, but invariably, all areas are likely to do better with one than with the other.

Would a $24k profit mean that you've turned 3.5% equity a year ago into 20%+ equity now? If so, kudos. That means that you do have both options available now, and you'd be free to apply for a new FHA-approved loan once you refi out of your current one.

My guess though is that your resulting cash flow won't be as attractive as you might think (make sure you crunch the numbers carefully), and your FHA-approved Lender may balk at your Debt-To-Income ratio once they take into account having two mortgages.

Nonetheless, that's how the game is played. Keep on winning! All the best...