Refi or sell?

Question

Morry Eghbal · Answer

Do not SELL the property. if the refi pays for itself in 2 or 3 years do it, otherwise leave it alone.

Dave Foster · Answer

Hmmm.  We'll I'm a 1031 guy and not a lendor so I wouldn't know for sure.  But then again, your realtor isn't a lendor either.  Something about that doesn't ring true and I would go straight to some lenders and ask that question.

One other rationale thought on that would be that the loan for a new primary residence actually isn't that much smaller since the part you're living in now is only 1/3 of the 200K house.

I think it would be worth your while to also check with a local/regional bank.  More and more are creating some very unique portfolio products specifically tailored to investors.

John P. · Answer

Thank you for reply @Davefoster

The problem with this is that my realtor said I wouldn't be able to get a oo loan because it is substancially lower in price than my current property (going from a $200k house to a $50k house as oo.) Is my lender correct here?

Dave Foster · Answer

A couple thoughts for you.

You can certainly perform a 1031 exchange on the property and leverage into multiple units..  Since you've owned and lived in this property for 2 out of the previous 5 years there may indeed be some advantages to holding for a period of time and then selling and doing a 1031 since you'll be able to take the profit attributed to the portion that you live in tax free.  So that becomes cash that can go into your pocket for the day when you find a screaming deal and need some cash to make it work.

Or you may think about a combination event.  The problem with cash outs is that many times they are relatively expensive to do with a short time horizon.  @Elizabeth  Colegrove mentioned the down payment requirements are much easier for a primary residence. You may want to think about using that heloc to buy what will become your next residence.  Then in a bit sell the one you're in and take part as primary residence exclusion, pay off debt and use the remaining equity to then do your 1031s.  Now you've accomplished a couple  significant things.

1. You freed up some profit tax free and set up your next primary residence (which will also be tax free in two years)

2. You bought your next property now without having to wait and did it with relatively inexpensive heloc money and with a lower down payment.

3. You also freed up extensive cash through your 1031 to buy 2-3 more properties in a bit.

John P. · Answer

UPDATE:

I went to my Credit Union to look into getting a HELOC, but they only appraised the property at $250k, and with 85% LTV they would only lend me $17k in heloc money. I signed it on monday, and called my lender that day to say i was ready to get financing for my second property using the Heloc money as my 20-25% down for a CONV loan.

My MLO immediately stopped me and wondered why i did this, said she could do a cashout refi for a lot more or i could sell my property and buy 2-3 properties in the up and coming areas. She also said if i continued with this HELOC i would be stuck again with no money once i buy the 2nd. I told her i would be rehabbing the property and try and and refi the heloc out but she stated this would be hard to do. my experience in flipping is nothing extreme.

I have one more day to cancel this heloc and i am back to the deliema of HELOC, Cashout Refi or Selling and doing a 1031 exchange. I am not cashflowing on the 3 unit, it pays the mortgage and i get to live for free. If i moved out i would Cashflow around $500 per month.

I am trying to grow my business, and i understand that having Cash in hand is your best friend in REI therefore i am leaning on selling the property for around $285k this summer, and 1031 exchange on 2-3 properties in a more up and coming area.

BP THOUGHTS>>>>???

Troy Sheets · Answer

This was my other thought as well, keep this one, pull equity out in a HELOC and owner-occupy another MFH that you can force appreciation into via repairs, etc.

Troy Sheets · Answer

As Elizabeth stated, owner-occupant (OOC) only needs 5% down, doesn't matter if it's your first or tenth property, as long as plan on occupying it as your primary residence. An  FHA loan, which stands for Fed Housing Admin, not First time Home Assoc or whatever everybody thinks it is, you can go as low as 3.5%. If you can come up with 5%, and it sounds like you can, you're much better off going that route.

Hang onto the goose that's laying your golden eggs and buy another goose!

Adam Kent · Answer

I would continue to live in it until you can raise the rent. Then I think more about moving out and renting the 3rd unit.  I am about positive cash flow on property.

Elizabeth Colegrove · Answer

@John P.

I am not a big fan of pulling money out of the house. 20-25% is only if you are NOT living in the house. If you live in the house its only 5%. So thats why I recommend you move into your next house, and rent this one out. That way you need alot less capital. We live well below are means so are reinvestment money for the next house is cash-flow/our money. This way we are TRULY growing and not just moving money around. As the houses as continue to appreciate we are starting to have houses with mortgages at 50% of the value.

Here are some articles I have written about mortgages

http://www.reluctantlandlord.net/how-to-strategica...

Refi or sell?

Most Popular Reply