paid all cash, should/can I take out a loan?

Question

Hey guys, first post here at BP although i've been following for a while. Confused about which way I should go with this property. Any feedback is appreciated.

I bought my first rental property two months ago. It's a 2b/2ba townhome with no hoa or fees. It was a cash-only buy listed for $43,900. The comps in this neighborhood were between $46-$54k. There was already a renter in there paying $650 who really wants to stay. I ended up getting the place for $37.5 which seemed like a really good deal giving me a ~13% cap rate. There were some minor cosmetic work to be done along with the wood siding needing to be replaced (estimated $4-5k on avg from various contractors). Anyways, not sure if I jumped in too quick being its my first deal and all. I paid all cash. My question: should I take out an equity loan on the place? If so, what is the best way to go about it?

Eddie T. · Answer

send me an email I will give you contact info of banker I use

Thomas S. · Answer

At the moment you have a good positive cash flow of about $170/month accounting for expenses at 50% and return of 5% on the $37,500 investment so you can defiantly pull out equity and remain at the same cash flow.

Ayodeji Kuponiyi · Answer

@Eddie T. I bought it for $154K and according to Zillow, the value is $120K. A similar duplex sold for $135K last fall but my units are updated(kitchen/bathroom/ flooring).

Eddie T. · Answer

@Ayodeji Kuponiyi What is the value of the property? I may have a lender for you if you need one.

Jason Hirko · Answer

What are your goals for the property? If you want hold on to it and don't need the money, the just collect the rent. But if you're looking to buy more property, you could use the property to to cross-collateralize another property. But that strategy probably would only work with a private lender, not conventional.

Ayodeji Kuponiyi · Answer

@Chad Deberry I'm also in a similar predicament. I bought a duplex cash back in 2012 and I'm contemplating doing a HELCO or cash out refinance or using it as collateral to purchase a 5 or 6 units apartment.

Jacqueline Pelzer · Answer

To piggyback off the original poster because I have a similar situation.  I purchased my coop for 69k.  I paid 50k and the seller financed the remaining 19k.  I signed a promissory note to pay it back in 24 months and actually paid it back in 9 months.  So I own it outright.  I am looking to take some money out and pay down some debt which have higher interest rates than a loan would.

Patrick Liska · Answer

https://www.biggerpockets.com/blogs/8121/49059-do-...

Say 47,000 appraisal - 75% ltv = 35,250. $35,250 HELOC @4% for 30 years will be $ 168 / month payments. do you bring home more than $168 in profit per month income after all other expenses ?, make sure the income will cover the loan and still leave you some money.

Jason Green · Answer

It will vary by state and lender but most lenders have a "seasoning period". So you will have to wait sometimes 60 days, maybe more to refinance.

A HELOC is a great way to get some equity out for sure. The issue I ran into on HELOC is that the payment I based on 1.5% of the possible balance. This may be lender specific or federal law, honestly I don't know. For example I had a home worth $300,000 and it was paid for. I wanted to borrow $250,000 on a HELOC. At those numbers the possible payment would have been $3750/month. At that large of a payment, DTI becomes a big factor for most people. You aren't talking about those kinds of numbers but it is certainly something to keep in mind.

On your deal, it doesn't seem like a bad get for your first property. Typically HOA issues steer a lot of investors away from Condo and townhouses but you don't have that issue. If you have a good tenant that wants to stay, by all means, let them stay.

Good Luck