Sell or Hold - Any idea what rates are supposed to do?

Question

I bought a cash property at a good discount that needed work - as a BRRR or Flip and it is nearing completion of its renovation. It is a SFH in an appreciating market, but the specific street/neighborhood is not ideal (some dilapidated houses, rough spots), however it would meet my cash flow metrics. The rising rates are causing me concern and I am looking for some guidance on what the general expectations on for how high and how quickly they will go? My plan is to attempt to sell the property now, and if I don't get the offers I am expecting, to refinance it into a rental. Does anyone think that rates will rise significantly in the 3-4 weeks it may take to sell? (Just in-case I do need to turn it into a rental.) It seems like a short enough time span to take the risk, but I don't have a concrete idea of what the rate expectations are.

Thanks

Anthony Fontana · Answer

@Colton Norman I'd refinance now and hold it. You're playing a tricky game trying to time the market ahead of rate hikes. I watched a lot of people fire sell their deals in 2018 when the fed was hiking rates and in 2020 with the onset of covid. All of them wish they were still holding those properties.

Refinance into a loan that allows you to have a flexible exit and enjoy the cashflow. Yield is also very difficult to come by right now, so if you're truly cashflowing in a good submarket, it will be hard to replicate that income stream with another deal.

Colton Norman · Answer

Thanks for all the responses - @Anthony Fontana I am moving forward with the refi&hold as originally planned.

Michael Dumler · Answer

@Colton Norman, depending on location, the property could be under contract within a matter of days if you receive an appealing offer. Personally, in the Atlanta market, I have yet to see any slow down in buyer demand even with the fear of interest rates on the rise. If the original plan was to hold the property as a rental and the numbers still pencil out after refinancing, then I advise holding. Nevertheless, your decision should be based on your long-term goals and if you desire to grow a real estate portfolio. Lastly, when analyzing both scenarios make sure you are considering all costs and expenses. For the refinance, your lender needs to disclose all related closing costs and points associated. On the selling side, account for the general 5-6% brokerage commission if you plan to list on the MLS, not to mention short-term capital gains tax as well. Hope this makes sense and helps!

Theresa Harris · Answer

Look at your numbers.  How much would you make if you flipped it and how much would you get if you rented it (with and without a mortgage)?  Sometimes a house you bought to flip won't make sense as a rental.

Caroline Gerardo · Answer

If you list in the MLS to sell and it doesn't sell, lenders have an overlay rule that you have to wait 6 months to refinance. Lenders can't sell the loan to Fannie and Freddie if you refinance a month after the MLS for sale listing is cancelled they will say no, you need to wait five more months to refi.

Some lenders will do it. I can do it but there is a pricing add.

Non owner occupied loans are expensive. A refi after trying to sell increases cost and rate because your plan is one that lenders do not want. Lenders don't want to give cash out refinance to a short term deal. If you later decided to put it back up for sale in a few months after refinance. It costs lenders between $3000 -$9400 to set up a mortgage with the vendors and employees...

Colton Norman · Answer

@Caroline Gerardo Just to clarify - are you saying if I bought the property on the MLS to be aware of the seasoning requirement?  Or do you mean if I were to list it on the MLS and then decide to re-fi this would somehow impact the financing?

Caroline Gerardo · Answer

Listing in the MLS is going to limit you on a conventional loan cash out refinance - most bank overlays will say nope wait six months. An investor cash out refinance is VERY pricy today as GSE's are not buying them so you will face paying two points plus the costs upfront as the lender has to hold the loan with their own cash. Find out what the refi costs before you list.  It can be done but my suggestion is to sell for a reasonable profit and take the red ribbon (second place). The market is still hot but with rates jumping and stagflation around the corner values won't keep touching the stars in the coming months. Rates jumped more than one percent already.

Chris Mills · Answer

Hi Colton,

Historically speaking, 3-4 weeks is a very short time span to see really huge jumps. It's not impossible though. At the same time, mortgage brokers will tell you rates can fluctuate day to day, week to week. I think it's really a matter of how sensitive you are to those fluctuations. Rates are going to go up, it's just a matter of how quickly. I heard people two years ago saying we'd be at double digit rates right now. No one knows for sure.

Sell or Hold - Any idea what rates are supposed to do?

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