I moved before Refinancing out of my BRRRR, now what?

Question

Hello BP,

I did an FHA conventional on a property in Worcester, MA in 2016. I purchased for $216,000 and had financed the repairs on an introductory no interest CC over the next year to rehab the property. Last year it was appraised at $300,000 and I took a $15,000 home equity loan out to pay the credit card before the interest came due. I got a great job opportunity in Washington DC and relocated for it, but in the shuffle did not refinance before I left my primary residence and left out that "R". I have it rented out and a property manager taking care of it, and it is cash flowing nicely, however only owing $199,000 on it and with recent comps in the neighborhood going for $325,000 I am sitting on some serious equity and would love to get a HELOC on it for my next investment or a home down here as renting is crazy expensive. Unfortunately, I am having trouble finding a lender who will do a HELOC on a multifamily investment property out of state. Any suggestions?

Diana Muresan · Answer

It is challenging to get Heloc on an investment property, being a MF makes it even more difficult. Also, not wise to do a heloc on an inv MF.

Conventional cash out is 70% LTV on inv MF cash out, you supposed to do the refi as owner occupied before you left, that allowed for 75% ltv and lower rate

Joan-Marie Pagan · Answer

@Eric Rosiello Where do u get the money for the Reno’s?

Eric Rosiello · Answer

Not sure if you are going to be able to get a lot of cash out at this point. For future reference I've been successful with this strategy:

1) Buy using a low money down product (5% or less, FHA or other). Add value through renovation to increase your equity to 20% of the post-renovation value.

2) Refinance to a conventional mortgage at 80% LTV.

3) Take out a Home Equity Loan (not HELOC) up to 100% LTV. You must live there to take out the home equity loan.

4) Move out.

5) Buy another property with home equity loan cash proceeds.

Bryan Devitt · Answer

Talk to Drew Mortgage in Shrewsbury MA. They have very creative options for investors and if anyone knows how to do it, it will be them

Steve Vaughan · Answer

Sell it within a couple years to lock in your tax-free gain. Sell soon if you need the capital to expand.

May be a blessing in disguise that you overlooked a huge detail 'in the shuffle'.

Eric Rosiello · Answer

@Joan-Marie Pagan

Property 1:

I used my savings. However, to afford this I had to bring in a 50% partner and we did almost all the renovation work ourselves. We worked on weekends and each took 1 week off from work.

The down payment was $23,250 (5% of purchase price using MassHousing, seller paid all closing costs).

We spent $17k on the renovation. I estimate we saved $15k in labor by doing the work ourselves.

By the time everything was said and done we had a property worth $570k that had only cost us $40k of our own money and roughly 15 working days of our time.

Property 2:

I used a 203k FHA loan (renovation loan). The renovation costs are borrowed from the bank with this loan type. The down payment was $20k (3.5% down payment for owner-occ FHA).

To help with the down payment, I took out a Home Equity Loan against the first property at 90% LTV at an interest rate of 5.25%, raising $71k.

I later refinanced and took out a Home Equity Loan against this property as well, raising another $102k for future purchases.

*Note: I invest the HEL funds in the stock market while searching for my next purchase.

Property 3:

I used the home equity loan funds from the previous two properties and added another partner to cover the down payment and renovation costs. I didn't live in this one, so I needed to put 20% down ($160k).

Going forward:

I plan to use continuing cash flows from the three properties, leftover HEL funds, and add more investors to fund future down payments and renovations.

A couple things to be aware of with this strategy:

* You must add value through renovation. If the property is not worth considerably more after your renovations you won't be able to refi / HEL without contributing additional funds.

* Factor in the cost of the HELs to your projections as they will significantly cut into your monthly cash flow. Your deal must have high upside and/or a lot of room.

Richard Cole · Answer

Wes Oliver at Prestiege Mortgage may be able to help.

Mary White · Answer

I second that you need to just sell it. The market is strong right now and you can still just take the profits and walk away. That's really what you should do. I had a forced move in 2007 a had to hold the home for 10 years because of the dropped prices. When I sold it in 2017, I had to 1031 the money to avoid taxes. It was fine at first holding it, but as capital expenses started to arise and I went through a couple of renters, it was proved to be a bad idea. We had no choice, but you do. Ask yourself what the opportunity cost of holding the property is.

Ryan O'Mara · Answer

@Patrick Reynolds - you can always look to do a cash out refi.  Depending on the lender, the property, and your FICO, you could get up to 75%LTV.

Charles Soper · Answer

Can you do a line of credit instead of a HELOC?  Might find a smaller bank willing to do so

I moved before Refinancing out of my BRRRR, now what?

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