New investor need advice

[Nick Lucas]

One year ago I purchased my first rental, house hacking a 4000 square foot duplex. I am looking into getting my second one here soon and need advice. I believe I have two options.

Property Info:

Purchase Price: $365,000

Current Loan: $329,000

Interest Rate: 5.7%

Mortgage:$1900

PMI:$130

Insurance:$157

Taxes: $320

Current Rent Left: $1200 (Market $1400)

Current Rent Right: Owner Occupy (Market $1800)

1. Option 1. Save and pay down mortgage to 20% equity ($292,000). This would be about $40,000 and would take approximate 8 months to accomplish. On top of the 8 months I would need another year or so to save approx. 30k for a down payment on the second property. Bottom line would have me cash flow $800-$1000 after all said and done.

2. Option 2. Refinance to a conventional loan.

Use approx. 6 months to save for down payment and look for the next property to house hack. Bottom line this would cash flow around $400 a month. Much less than option 1, but much quicker timeframe.

[Jason Wray]

Nick,

Without knowing the current value of the home its tough to tell you to refinance or not at this point.  If the home is only worth $365K you cannot refinance to take out any cash and switching to conventional will only increase your rate so there is no tangible benefit to a refinance from current to Conventional.

You are sitting at around 90% LTV if the value is $365K so a refinance would still require PMI and rates are higher than your 5.70% right now even with a rate buy down. If the home is more than $365K you would just need to run the LTV to see if it was around 80% in order to remove the PMI but again the rates still put you around 6.25% at best.

I would not move out until you refinance if it is an FHA mortgage because when you go to refinance it will be treated as a "Non-owner occupied/Investment" and the rate will shoot up to above 7% again if the LTV is down to 80% to 85% Max.

If you wait and save some money you only need 5% in order to buy another 2-4 unit Multifamily. You are at the 12 month mark so you have hit the occupancy seasoning required but again I would refinance to avoid the FHA 100 mile rule once you have the equity at 85% or less.