Fourplex Exit Strategy - Texas

[Milton Granados]

Happy New Year BP!  

I'm seeking advice from the collective genius of BP regarding an exit strategy for a fourplex that I bought in April 2017 using an FHA loan for house-hacking/rental income. Going through this process was an invaluable experience, especially learning how to be a landlord and how to renovate the units - but now it's time to move on to the next property.

Here's a bit of background:

• Current loan is an FHA with $200k outstanding
• Appraised within the last few days at $320k
• The fourplex generates about $3,400 monthly gross income

It was my hope to cash-out refinance to a conventional loan, but it turns out that is not an option for owner-occupied 2-4 unit properties (found out the hard way after paying the bank for an appraisal).  Here are a few options that are currently on the table, let me know what you think about them.

• Opt 1 - Move out, and do the cash-out refinance once the building is no longer owner occupied (can I just rent an apt somewhere else to change my address?)
• Opt 2 - Continue with the refinance just to get rid of PMI, which would bring the monthly loan costs down about $180
  • This would leave about $120k in equity (65% LTV)
  • Could this work as a pathway to a future HELOC?
• Opt 3 - Not do the refinance, but sell in April 2019 (2 years since purchase/move in) which would be an approximate gain of $100k (capital gains tax would apply to 3/4 of the gain for the rental units)

I appreciate everyone's time and input, and would love any other possible suggestions on exit strategies!

[Jim Cummings]

@Milton Granados. 

Opt 1 - Move out, and do the cash-out refinance once the building is no longer owner occupied (can I just rent an apt somewhere else to change my address?)

RESPONSE: Renting an Apartment just to change your address without physically moving into the new place, sounds like could have some semblance of misleading the lender or depend how the prosecutor might charge it - Loan Fraud!

Opt 2 - Continue with the refinance just to get rid of PMI, which would bring the monthly loan costs down about $180

This would leave about $120k in equity (65% LTV)

Could this work as a pathway to a future HELOC?

RESPONSE: How is your Cash Flow after refinancing? NOTE: You can't do a HELOC on an investment property in Texas.

Opt 3 - Not do the refinance, but sell in April 2019 (2 years since purchase/move in) which would be an approximate gain of $100k (capital gains tax would apply to 3/4 of the gain for the rental units)

I appreciate everyone's time and input, and would love any other possible suggestions on exit strategies!

RESPONSE: If you continue to live there, and Sell (whenever) you would be able to claim 25% of the gain as Sale of Personal Residence. As a Single Person, you can make up to $250,000 on the sale of a Personal Residence without paying Capital Gains. If married the provision is $500,000. Your post sounds like you want to invest in a bigger, more expensive property. Have you considered Selling on a 1031 Exchange, and postpone payment of any Capital Gains.

@Dave Foster or one of the other 1031 Experts on BP can probably add more meat on the 1031 Options available to you.

Good Luck - what a nice problem to have!