Pulling Equity out for a down payment

Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes

2y

@Brett Riemensnider You're asking the right questions. Your lender will require an appraisal to determine EXACTLY how much you can cash-out. Unless that was completed the $80k was just an estimate. I don't know any lenders that will let you pull >80% LTV at this time. You'll mostly likely fall in the 70-75% max LTV.

Your payment will go up but like you said the positive cash-flow from the multi-family should cover it. I wouldn't leverage your primary to loose hundreds of dollars each month. But if you're leveraging and reaping the rewards and this theoretically property only costs you $50 per month it would be 100% worth the investment. Especially if the location and property condition is good. You're spreading equity into more properties, paying no taxes on rental income, and seeing the benefits of REI. It's like step 5/50 because you're already a home owner and been through the closing process.

It's on you to decide how much you want leverage, how much skin you have in the properties (probably a minimum 20%), and what level of PM you can or want to handle.

1 Reply

Jonathan Nichols

Investor · Arlington, TX · Member since 2018 · 20 posts · 9 votes

2y

@Brett Riemensnider good on you for jumping in to the world of investing! It's also great to you have a grasp on the number not just of the one property but your whole financial situation.

I'm responding because my wife and I were in the exact same situation as you when we began investing years ago. We ultimately decided to move to a four plex and house hack it so that we could have a low down payment. I would encourage you to consider this option if at all possible (yes it was a huge sacrifice). If you cannot do this for some reason then you will either need the multifamily property you buy to produce a net cash flow of $450 or higher or you will need to be able to float the $450 from your income. It is difficult to find SFH or small multi that cash flows in the market so I am skeptical that you will find something that cash flows enough to cover your HELOC payment but then again I have been wrong many times. Let me know if this helps and all the best to you!

2 Reply

Mason WeissBusiness Member

Realtor · Phoenix, AZ · Member since 2021 · 523 posts · 239 votes

2y

Good questions Brett. I think the other aspect to think through beside the cash flow is what is the opportunity created with another property in your name? Appreciation, tax benefits, principal pay down all make the $50 gap much easier to digest.

[email protected]480-818-7745

1 Reply

Erik EstradaBusiness Member

Lender · Member since 2022 · 6k+ posts · 1k+ votes

2y

Quote from @Brett Riemensnider:

Hi everyone. I am looking to buy my first rental property and so far have narrowed it down to a small Multifamily. Unfortunately I only have about $25k as a down payment which isn’t much to put down on a Multifamily.

I currently own a single family home which I live in and talked to my lender about pulling equity out to help out with my down payment. I was told I could probably pull around $80k out.

Two questions.

1. If I pull that $80k out, my monthly mortgage payments will go up around $450 per month. Would it be ideal then to find a Multifamily property that will cash flow OVER $450? Or would that be viewed completely separately? For example, let’s say I find a duplex and after all expenses I’m left with $200 pure cash flow per unit. In my head, that would be a negative cash flow of $50. Is this the right way to think or am I over analyzing?

2. When I bought the house, I put exactly 20% down to avoid paying mortgage insurance. If I take the 80k out, does that mean I start paying mortgage insurance? Or is 20% only needed for the initial purchase of the property? If so, is that worth it if I’m using the money to invest?

Thank you.

Hey Brett,

A lot of turnkey properties tend to debt service at 65-70% LTV with current rates. You might want to use that equity to find distressed, value add opportunities instead.

If you do a cash out refinance you will be capped at 75% LTV of your current property value. So there would be no MI. You can squeeze out some more with a Line of Credit. Lender's will allow up to 90% CLTV on a line of credit. You also pay interest on what you draw, not the full balance you apply for.

[email protected]818-269-7983

LuxePrivate Investments LLC 572 Reviews

Website View Page

1 Reply

Brett Riemensnider

OP

Member since 2023 · 42 posts · 28 votes

2y

Quote from @Jaron Walling:

@Brett Riemensnider You're asking the right questions. Your lender will require an appraisal to determine EXACTLY how much you can cash-out. Unless that was completed the $80k was just an estimate. I don't know any lenders that will let you pull >80% LTV at this time. You'll mostly likely fall in the 70-75% max LTV.

Your payment will go up but like you said the positive cash-flow from the multi-family should cover it. I wouldn't leverage your primary to loose hundreds of dollars each month. But if you're leveraging and reaping the rewards and this theoretically property only costs you $50 per month it would be 100% worth the investment. Especially if the location and property condition is good. You're spreading equity into more properties, paying no taxes on rental income, and seeing the benefits of REI. It's like step 5/50 because you're already a home owner and been through the closing process.

It's on you to decide how much you want leverage, how much skin you have in the properties (probably a minimum 20%), and what level of PM you can or want to handle.

Thanks Jaron, I appreciate the response. Yes this was simply a ballpark of what I could more than likely pull from it. My interest rate is at 2.62%. Haven’t got to running the numbers on properties yet either, that $200 pure cash flow per unit was just for the example.

I’ve just been reading a lot of books so far and narrowing down what I am looking for. I don’t know what the numbers are currently looking like or what is realistic for what I what/what I can afford.

1 Reply

Danny RandazzoPro Member

Apartment Syndicator · Charleston, SC · Member since 2016 · 973 posts · 728 votes

2y

@Brett Riemensnider have you consider bringing on an investor or partner to help? A lot of times investors can get further faster by partnering versus trying to do everything on their own.

0 Reply

Brett Riemensnider

OP

Member since 2023 · 42 posts · 28 votes

2y

Quote from @Danny Randazzo:

@Brett Riemensnider have you consider bringing on an investor or partner to help? A lot of times investors can get further faster by partnering versus trying to do everything on their own.

Yes I have thought of that. However I’m unsure of how to get into a partnership with someone with experience while having none myself. Have a lot of drive but lacking full knowledge and experience.

1 Reply

Jaryn PiersonPro Member

Investor · Pittsfield, MA · Member since 2019 · 88 posts · 49 votes

2y

Hey Brett

As mentioned above, great questions. One thing to look out for is that $200 cash flow per door goal will often come in a much less consistent way especially in the first few years of a new property. $350 cash flow one month, and then you could be in the red $3k the next. May not be crippling or even that painful, but make sure you have enough reserves set aside to weather the storm. Let's say the bank gave you $75k and then you have your additional $25k. I'd be looking to be under contract on something at $300k or less. After 20% down and some closing costs it would still leave you with a nice healthy set of reserve capital to make some improvements or float a few rocky months if your inherited residents didn't work out.I say this as somebody who has overextended and although it's worked out for me, spare yourself the gray hairs !

Podcast Guest on Show From His Grandma’s Couch Making $15/Hour to $30K/Year from ONE Property

0 Reply

Gino BarbaroPro Member

Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes

2y

@Brett Riemensnider

I pulled a HELOC for my third deal, and was able to pay the additional payment with the cash flow from the property. Eighteen months later, we refinanced the property, and I paid off the HELOC.

Just make sure you can buy a property where you can increase the value, and pay back your loan

Gino

Podcast Guest on Show The “Conveyor Belt” System That’ll Build You a BIG Rental Portfolio Quickly

0 Reply

Peter W.

Member since 2020 · 351 posts · 329 votes

2y

I am evaluating doing the same thing in a couple of years to expedite accrual of properties. I intend to do a second mortgage 15 year so my number ended up closer to 600/mo (and let’s me keep the 3.125% on my primary). It would be ideal for the rent from the property to cover both its own mortgage and the increase in your mortgage on your primary. But that might be very difficult under current market conditions.

At minimum, you want the yield on rent (minus expenses including taxes mortgage, vacancy, maintenance and capital expenses) to exceed interest rate. Or in finance terms cap rate>interest rate. Another way of saying this is that it’s okay to have rents not cover all of your mortgages as long as your cash out of pocket only goes to principle pay down (starting day 1).

0 Reply

Danny RandazzoPro Member

Apartment Syndicator · Charleston, SC · Member since 2016 · 973 posts · 728 votes

2y

@Brett Riemensnider have you gotten involved with a local investor group? You definitely should as it can be a great way to make good connections. You can put money and your time into a deal which brings value and a more experienced investor can also put money into a deal and get value from your time.

0 Reply

Paul Erickson

Realtor · St Paul, MN · Member since 2022 · 20 posts · 15 votes

2y

I would also look into down payment resources.

it is feasible that it your situation if you were willing to move into the MF property for the first few years you could get tens of thousands of dollars in down payment assistance to make the deal work. And you likely could hang on to your primary residence and rent it out at the same time for even larger growth.

give me a call if you want help with figuring out creative ways to get this together. The twin cities can be tough, but flexibility usually wins out in the end

1 Reply

Jaron WallingPro Member

Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes

2y

"My interest rate is at 2.62%" - Do not loose that rate unless you sell. Pull a HELOC if you need for the next property.

0 Reply

Brett Riemensnider

OP

Member since 2023 · 42 posts · 28 votes

2y

Quote from @Jaron Walling:

"My interest rate is at 2.62%" - Do not loose that rate unless you sell. Pull a HELOC if you need for the next property.

Yes I definitely don’t want to change that interest rate. HELOC’s are different than refinancing correct? I would be able to keep my same interest rate on the home, but is there a new interest rate that goes into doing a HELOC? I don’t know enough about them, but business common sense would tell me that the bank would need something in return like a higher interest rate to make that worth their time.

1 Reply

Pulling Equity out for a down payment

Pulling Equity out for a down payment

Most Popular Reply

14 Replies