Sell house, cash out refi, or HELOC?

Question

Hi everyone! My name is Cathy & I could sure use some advice. I’ll try to make this as short as possible. I’m 62 ½ years old. I plan to work another 4 years.
 I would like to cash flow $4000 a month by then. I’m married & my 
husband has been in the construction field for over 40 years. He’s a carpenter so we do our rehabs ourselves only subbing out major electric or plumbing.

I own a house that we have rehabbed over the last 4 years. Paid $180,000 and it’s now worth $300,000 (I owe $169,000). My total payment right now is $1216.00. That includes a PMI of $145 and the interest rate is 4.375%. As I see it, I have 3 options and if there’s another, please let me know.

• Sell the house outright. I would not pay capital gains taxes because I’ve lived there the last 4 years. I would have to pay closing costs. I would then take the money to pay off a few bills (listed later), buy more properties and start the Brrrr process.

• Cash out refinance at 80% ($240,000), keep the house & rent it out for cash flow. I could rent for between $1800 & $2000 a month (I’ll have to research that a little more to get more precise). I would have to pay closing costs, but I would get rid of the PMI I have now ($145 a month). I could then take the cash and after paying off my bills use that money to start the Brrrr process.

• HELOC. No closing costs, but I know there would be some fees. Pay off those bills & use the money to start the Brrrr process. Keep the house & rent it out for cash flow.

The bills that I would pay off:

• Car $6000

• Loan $10,000

Right now, I feel stuck because I don’t know enough about investing to pick the right one for my situation. I don’t know that if I went to a bank that they would give me advice that would be best for me or best for them. Any help/advice would be GREATLY appreciated. Thanks in advance.

Sam Ohanesian · Answer

@Gary Parilis I suppose I could cash out refinance but my rate on the property is 3.25 right now, I'd really hate to lose such a low rate.

It is a rental property and I live out of state. I doubt I could find anyone willing to do a HELOC on it.

Mei Gu · Answer

@Sam Ohanesian, there are banks who do HELOC on investment/rental properties.

Catherine Karaszewski · Answer

Thanks David. I didn't think about 2 loans.

David Barnett · Answer

@Catherine Karaszewski I think your interest rate is a bit high, and you'll be able to refinance out of PMI.  My recommendation would be to do a cash out refinance for enough to pay off the two debts and take out a HELOC for the rest up to 80% LTV.  You'll likely be able to save both PMI and on the interest rate on the new refinanced loan.

Gary Parilis · Answer

Sam, why can't you get equity out of that house? You can do a cash-out refi or get a HELOC. You would have gotten a lower rate while it was a primary residence, but you can still borrow on it.

Catherine Karaszewski · Answer

Thanks guys. Kathy, we are still living in the house. If I do a cash out refinance or HELOC, I would use that money to purchase another house to live in while fixing it up. Then, refinance that house after bringing up the value.

Are you leaning towards refinancing & renting VS selling outright?

Sam Ohanesian · Answer

I own a property in California that has similar equity in it. I owe about 225k and it's worth 400k or so. I ended up renting it out and buying another home but I wish I would have got a HELOC on it before I moved out of it. It's a great rental property for me but all that equity is just sitting there and theres no way to access it besides selling.

I personally would get a HELOC on your property and use it to fund your next deal. Then move out and rent it out.

Kathy Henley · Answer

Is this your primary home @Catherine @Catherine Karaszewski or is it sitting vacant? Where are you going to live? This expense must be considered. If it is vacant, get some tenants in there while you are getting your education. Don't sell the house until you know where you are going.

Are you saving money every pay period? Do you have savings? One must look at the big picture to understand the options. I suggest that you start listening to investment podcasts. There are hundreds. Read or listen to Kim Kiosaki's book: It's Rising Time. Yes visit the bank. Banks love to talk about options. Read your loan papers because the PMI might go away on its own if you have reached a certain amount of equity in the property.

Sell house, cash out refi, or HELOC?

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