Using equity to purchase house hack

[Matthew Jackson]

My Wife and I purchased our home in Charlotte NC last year for $147,000. We bought it in rough shape and have since then replaced all the flooring, put in new Kitchen cabinets and countertops and painted the whole place. Similar comps in our area are $170-175K. 

Our plan in the near future is to purchase a small residential multifamily home (in either Charlotte NC or Asheville NC) and do a traditional house hack. What I want to know, what is the best way to take out our equity in order to purchase a multifamily residence? HELOC? Cash out refinance? Our plan is to also keep the home we are in and rent it out.

I have been looking into HELOC's and Cash out refinances a little but feel I need an experienced investor to help me out a little with options on what they think is best and how I should go about doing this?

All replies are appreciated! I am brand new to Bigger Pockets and REI. I have read a fair few books on the topic now and am trying to get creative in order to start building my portfolio.

[Colleen Goldstein]

@Matthew Jackson

To recap, you're sitting on $28k in equity

1. Did you put 20% down on the original purchase (if not that's an issue for your cash out as lenders typically only do 70% LTV)

2. Can you qualify for a multi family AND you primary? You should speak to a lender before doing ANYTHING. I know they can sometimes offset the debt when you have a signed lease and deposited first month check, may be able to offset the multifamily if units are leases (however, not sure if they use the rents to offset if youre getting a primary home loan vs. investment) Also, there may be limitations for who they can do this for - they may want you to have history as a landlord for at least 2 years to do this.

3. Is 28k LESS cash out refi fees ($2-$4k depending) worthwhile to pull out? Will your mortgage payment go down as well? What's the interest rate difference / monthly payment difference?

4. Multi families - Do properties exist in the price range you would have once you do a cashout? I simply ask because there are very slim and all overpriced small multi families in the Charlotte area - usually not great investments. Asheville market is different but the small multi family in Charlotte typically isn't a good path which would make me question if you've been looking and run numbers on the deals you could get after your refi.

5. Lastly, I would caution to keep reserves high when doing this move. Inevitably there will be issues once you buy and having 5 units off the bat can have unexpected costs all at once. If you're stretched too thin to get the property just make sure you have contingency plans once you buy or other funds you can access in a pinch. For us, this is 401k, brokerage, IRA, or even no interest credit cards that we open as we buy a new property (free 12-18 mo loan) **don't open a credit card before loan is funded and deal had closed**