Unique Refinancing/Rehabbing/Financing Scenario Question

[Kyle Josefiak]

Hey there!

Hoping my lack of BP activity doesn't turn people away from my question. Been gaining experience/knowledge about real estate investing and rehabbing through first hand experience the past five years with my own house but really itching to finally step outside my comfort zone and make my first deal. What makes my situation somewhat unique is I'm trying to kill two birds with one stone and make renovations to my current house while also gaining financing to make my first deal. Based on everything I've learned the past several years I'm thinking it makes a lot of sense but would love some BP forum feedback.

Going to keep this as condensed as possible because nobody likes to read a novel.

Bought my first starter home five years ago for $102k with 20% down. Owe $70k on it and refinanced a little over a year ago to change from a 30 to 15 year loan. During refinance my appraisal came in at $190k and that was even before remodeling my kitchen and bathroom, which is one of the birds I'm trying to take down with this strategy.

Goal/Bird #1: Been wanting to remodel the kitchen and bathroom for a while but just got married last year and that took priority. Now this year it's definitely going to happen and the original plan was to use most of our wedding gifts to cover the cost.

Goal/Bird #2: Been super motivated and pumped up this past year to make my first investment and feeing confident in the knowledge/info I've gained over the past several years. I've practiced analyzing over 100 deals and studied the market I want to focus on. To accomplish this I had originally thought I'd go the private lending route as I have several resources that could be interested in partnering on a deal.

MAIN QUESTION: As noted, I've mostly only considered accomplishing both of the above goals through personal/private financing to not only remove another bank loan from the equation but also continue to pay my current mortgage down and off in less than 10 years. But given everything I've learned about acting now and thinking more longterm I'm not really sure why it never occurred to me why I wouldn't want to leverage the incredible asset I've been living in, and plan to live in, for many years. So the main question is, are there any reasons why I wouldn't want to refinance by current house, potentially for $150k (~$75k equity), and use that money to both renovate my own kitchen/bathroom as well as finance my first real estate investment (really interested in BRRRRing) verses using personal savings/private loans? With my current job I'd have no problem covering a new, larger, refi mortgage for either 30 or 15 years so interested in hearing peoples opinion on what they would do in this situation.

What do you guys think? Really appreciate any and all feedback and perspectives!

[Jerry Padilla]

@Kyle Josefiak

My personal recommendation would be to cash out refi on your current home - remodel the kitchen to keep the wife happy and use the remainder on a down payment for the investment purchase. You can pull out 80% of the LTV on your primary for a SFR.

When choosing the investment property I would suggest getting one undervalue that may need some work, updating - to then increase the value of the property. You can go about several ways of financing this investment property since you will have the cash pulled out of your primary home for the investment down payment.

You can use the HomeStyle Renovation Loan - which for investment properties limits you to a SFR and is not meant to be a product for Fix flip and sell. It is meant to hold the property. If you are wanting to purchase a MFR than you would have to look at another renovation loan product.

If you have enough cash from savings and your primary home cash out to purchase the property cash, I would go that route. And just do a cash out refinance, on the investment property after the renovation is complete. This cash out refinance will then allow you to purchase the next investment property as long as all the numbers work out. Prior to 6 months you will only be able to cash out a max of purchase price plus closings costs. The LTV for a cash out refinance on an investment property is 75% for a SFR and 70% for a MFR.

If you didn’t have enough cash to purchase the investment property outright, You can also purchase the property with conventional financing and make some improvements with the remaining cash. You can than cash out refinance this property and have the down payment for the next property. If you originally used financing, there is a 6 month wait to cash out refinance based on current appraised value.