Rental Property Investor · Member since 2019 · 45 posts · 15 votes
I've been listening to BP, sitting with investors, reading, and learning for a year now. I'm frustrated that no one ever told me about RE investing before but now I know and at 52, decided we will be moving out of our current home so we can rent it out. My wife and I have bought another home we will move into, have rehabbed and feel confident we can rent it out in a year for a very good profit as well. Or we may stay in this new home for a while and refinance the first home that has about 100k in equity. My question is, should I get a HELOC so I don't pay unnecessary interest when I use it or a home equity loan which may leave me with extra tax-free money to add to another BRRRR if I get a low enough home price and rehab for another home? In other words, if I get a home equity loan of 80k but am all in at 70k for a house and its rehab, I could still have 10k left towards another home. Would very much appreciate all of your input. Thank you for your time.
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
6y
Welcome, @Brent T Galbreath. Never too late. With some hard work and focus you can be sitting pretty by the time retirement rolls along.
First question, will your house actually make a good rental? Please share your numbers. All to often new investors under estimate or just don't account for expenses and find themselves in a very tough spot.
That being said, I like the strategy of using a HELOC for dow payment or rehab costs. With the caveat that it's short term financing. Yes, the lower fees and lack of borrowing costs until it's used is great, but if you can't pay it back relatively quickly, the higher interest rate and shorter term will bite you.
I expect you'll be able to get about the same amount of cash from either a refi or HELOC. Check around with local lenders. I've seen 100% LTV HELOCs. It's nice to have access to all your equity, even if you don't need to use it all.
Rental Property Investor · Member since 2019 · 45 posts · 15 votes
6y
@Jaysen Medhurst thank you so much for your reply. I purchased the house for 120k and owe about 50k at this time. I’m told the house would sell for about 165K by realtors. It’s in a very nice neighborhood but the area is growing with Rowan university and a hospital moving in. it’s only a two bedroom one bath which I understand doesn’t usually bring long-term rentals. However, it’s completely remodeled with all new appliances, granite countertops, etc. Given the market, I’ve also wondered if I shouldn’t Simply sell it, take the cash and go buy something else. My current mortgage including taxes and insurance is $1050 and I’m told it should easily rent for $1200 but would most likely go for more given its condition. That’s on a 15 year mortgage which I could refinance at 30 yrs with such low interest rates and make around $500 a month.  or I’m thinking I could be satisfied with $150 a month but continue to pay the $400 each month towards the principal. However, because of local growth, our equities keep climbing and I don’t want to lose out on that. Thoughts?
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
6y
This is why is asked, @Brent T Galbreath. There are more expenses than just mortgage, taxes, insurance. You'll have repairs, capital expenditures (CapEx), vacancies, and management. Over time those expenses will work out to be ~30% of your monthly rent. Maybe a little more, maybe a little less.
Using the conservative rent of $1200, that leaves you ($200)/month. That's negative. If you move to a 30-year, you'll get cash flow positive. Let's call it $300/month. That's not bad for cash flow on one unit, but you'll have ~$65k-115k equity (depending on your refi amount). That's a Return on Equity (ROE) of ~3.0-5.5%, which is terrible.
If it were me, I'd sell and redeploy the capital into a value-add MFR with good cash flow. You'll get a better return and start realizing efficiencies of scale.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
6y
@Brent T Galbreath if you are going to use the money in a way that it gets paid back soon, like a flip go for a credit line. If you are going to use it for a longer time like a buy and hold property then a home equity loan can make sense.
Personally i would get a line of credit and refinance into more permanent financing to pay back the credit line
Keep in mind you should do any type of financing on your current home now before you move. Once you move and it is no longer your primary residence then getting any financing on it will be tougher.
Rental Property Investor · Member since 2019 · 45 posts · 15 votes
6y
@Ned Carey thank you for that. I didn't realize it would be more difficult after I move. But in the BRRRR strategy, aren't they refinancing after they rent it out which would of course mean they're not living in it?