What should I do after I sell my house?

Question

I bought my house a little over 4 years ago, and have been remodeling it while also living in it. I am ready to sell it now and should net about $35,000 after the sale and other expenses (closing, real estate commission, paying off a.c. unit, etc). I want to use that money for a downpayment on a rental property and another house for me to live in.

The idea would be to sell my house, put 3.5% down on another house, use the cash from the sale of my house to put 20% down on a move-in ready rental property.

For the house I would be living in, I'm thinking about buying a 3 to 4 bedroom house in a trendy neighborhood and house hacking by renting out rooms to cover my mortgage. Ideally, I would find a house where the rent from the rooms would produce positive cash flow after making my mortgage payment. I would also be using the cash flow from the rental to pay other expenses I have. The houses I'm looking at living in are older houses that have been completely renovated. I do not want live in another remodel project again if I don't have to.

Does anyone have experience with this? Any glaring errors in my plan that I might be blind to? Any advice would be greatly appreciated. I'm new to all of this and have been struggling with my options.

Lynn McGeein · Answer

Account Closed it is usually the minimum length of time you need to sign at closing stating you will live in the home as an owner occupant in order to get the lower down-payment owner-occupied loan terms.   It's to minimize those taking out primary residence loans with lower-down options and easier qualifications, then moving out months later, flipping or turning them into rentals.

Edgar Gutierrez · Answer

Account Closed Thanks for sharing!

I started doing some research on the BRRRR method and that sounds like something i would be interested in after i sell my house.

If i had the cash or credit score for a HELOC or a hard money lender i would rent this house out and cash flow about $700-$800/month. I also  just found out you in the state of Texas you cant cash out if you have an FHA loan, which is the type of loan i have. Plus I don't qualify to refi for a conventional loan so I wouldnt be able to get another FHA loan on my next property if i rented my current home out.

This would have been the Ideal property for me to rent out but unfortunately it sounds like im going to have to sell to access to the equity i have in this home.

I bought this house for $140k six years ago and I owe $122k on it. We're going to list it at $225k which is on the low end to try and get an offer quick, so im hoping to net about $85k.

My goal is to pay some debt off and qualify for an FHA loan on my new home, build my credit score to where i can refi for a conventional loan and then use some of the equity left to get another FHA loan on a BRRRR property.

If you have any advise or thoughts on my strategy I could sure use it.

Edgar Gutierrez · Answer

Account Closed I'm basically in the same boat you were a year ago.

Would you mind sharing what route you took? Any advise?

Regards,

Account Closed · Answer

Have you looked into what is required to get a HELOC? What is stopping you from going that route? If you could get a HELOC you could access the capital needed to put a downpayment on a BRRRR property with a hard money loan. Being new to investing, the hard money lender would probably require 30% down. If you have enough equity in your house you could probably cover the downpayment and a $20K to $30K rehab.

The problem I'm running into with the hard money loan is that they require the property to be held in an LLC in order to lend you the money. This makes the cash-out refinance a little more challenging. I will have to deed the property back to my name before I cash-out refi into a conventional loan. The hard money lender offers a cash-out refi as well, which would allow me to keep the property in the LLC, but the interest rate is a few points higher. This makes the monthly payment higher, which means the property doesn't cash flow as well.

You could build up your credit through the rehab process by using a credit card to pay for material for the rehab and paying it off regularly. It should only take a few months to build up your credit to the point you qualify for a conventional loan, as long as it's not too low.

Account Closed · Answer

I sold the house and netted closer to $50K. I bought the completely renovated house that I mentioned in my earlier post by putting only 5% down. I took some of the rest of the money from the house I sold and put it toward a downpayment on a BRRRR property. I used a hard money loan that required 30% down on the BRRRR house, which I bought for $50K. The hard money loan also covered the rehab of $40K making the total loan for $75K. I am almost done with the rehab, which has taken about 4 months to complete (I'm doing it almost entirely myself). I hope to have a tenant in it by August and cash flowing about $225/month.

I rented out a room to a friend of mine in the house I currently live in (the renovated one) for about six months, and I was AirBNBing one of the other rooms. My friend moved out and I haven't kept up with the AirBNB. I make enough money to cover my mortgage without having to house hack. I didn't mind the extra income but didn't really care for having roommates.

Account Closed · Answer

Thank you for the response. I have been looking at buying a duplex and living in it and renting out the other unit like you mentioned. What is the rationale behind living in it for one year? Is that the minimum amount of time I would need to live in it before qualifying to purchase another owner-occupied property?

Thomas S. · Answer

You would be financially farther ahead if you invest the money in a multi unit and live in one unit for a year. You get the benefit of a owner occupy home and can do it as many times as you desire to grow your investments.

Buying a personal home is a bad idea if you want to continue investing. Stay away from the liability and high cost of maintaining a home until you have money to throw away.

Lynn McGeein · Answer

If you're up for it, buy the next home as owner-occupied, low down loan where you want to invest, plan to live in it at least a year, rent it out, (even better if it's a 2-4 unit where you live in one and rent the others), then buy your next owner-occupied where you actually want to live a year later.  A year more of your life and you've got a great low-down start on investment property.

Ben Reed · Answer

The only thing that immediately comes to mind is think about your debt to income and if you can acquire both in an acceptable range for your lender. Also, for a non-owner occupied you may have to bring 25% to the table for the investment property.

What should I do after I sell my house?

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