looking to purchase a single family home

[Marquise Bailey-Dillard]

Hello, 

So back in 2020 my wife and I purchased a 2 family home. We did the BRRR method and house hacked. we lived in one unit and rented out the other. At the time this method was best for us because we both had recently graduated from college and had over 100k in student loans and car debt. fast forward to now we completely DEBT FREE besides our home and we are looking to purchased our single family/forever home and keep our multi and rent it out. I have looked into HELCO and just dont know when the time is right to pull the trigger because of the rates.

I also have read post about creative financing and honestly dont know where to start! 

Thank you for your help! 

[Tyler Munroe]

Hi Marquise - congrats on paying off your debts! You may run into issues trying to take a HELOC out on an investment property, and even if you can I doubt you'd want to use it for a down payment for a primary because the rates are much higher.

What kind of cash flow would you be generating from your multi once you move out? Are you looking to stay in the Boston area?

[Marquise Bailey-Dillard]

Quote from @Tyler Munroe:

Hi Marquise - congrats on paying off your debts! You may run into issues trying to take a HELOC out on an investment property, and even if you can I doubt you'd want to use it for a down payment for a primary because the rates are much higher.

What kind of cash flow would you be generating from your multi once you move out? Are you looking to stay in the Boston area?

It’s currently my primary home, the house is located in Taunton, ma which is located south of Boston. 
cash flow is looking like 1800-2000 monthly. 

My two bedroom is currently being rented out for 1900 and the training is coming in the spring. 

[Jake Baker]

@Marquise Bailey-Dillard

Congrats on becoming debt-free and on your first successful BRRR/house hack—it sounds like you've built a solid foundation!

You should have no problem getting a HELOC with no bad debt. Rates will be 10-13%, depending on the terms.

A HELOC can be a good tool to leverage your equity for a down payment without touching your current low-rate mortgage. HELOCs are great for shorter-term investments like flips or rehab on a BRRRR project. This way, you can pull the money out in less than a year.

A cash-out refinance might be better if you want to park the money somewhere. Even if you get a higher rate, you don't want a HELOC loan stuck in a long-term investment.

[Tyler Munroe]

Quote from @Marquise Bailey-Dillard:

Quote from @Tyler Munroe:

Hi Marquise - congrats on paying off your debts! You may run into issues trying to take a HELOC out on an investment property, and even if you can I doubt you'd want to use it for a down payment for a primary because the rates are much higher.

What kind of cash flow would you be generating from your multi once you move out? Are you looking to stay in the Boston area?

It’s currently my primary home, the house is located in Taunton, ma which is located south of Boston. 
cash flow is looking like 1800-2000 monthly. 

My two bedroom is currently being rented out for 1900 and the training is coming in the spring. 

Definitely look into HELOC/cash out options, but if those don't work in terms of rates or availability I'd suggest using the existing cashflow from your multi to offset a primary mortgage, and then find a primary with an ADU. This way, you would have two income sources offsetting most, or all, of your mortgage payment. ADUs will be legal, by-right, state-wide starting in February.

[Lien Vuong]

CONGRATS on debt free life! Dave Ramsey is proud of you ;)

There's no 'right' time to pull out the HELOC bc its a floating rate until you draw so it might be 9% today and 10% tomorrow and 8% the day after. Since they do not require closing credits and you do not draw on the funds nor pay for the debt until you take the draw of the HELOC it is best to get started on it now so you have funds ready. Given the seasonality there's likely slow workflow from the banks so it would be a good for you to apply, get approved, and be well poised for the spring market!

[Brittany Minocchi]

If you know what you want to do with the cash and have an immediate need for a larger amount, I'd recommend a cash out refi over a line of credit. You can compare both options and see which makes more sense with the rate you'd qualify for. Take a look at the rents for both sides vs current mortgage payment (if any), new payment on the cash out or HELOC, taxes, insurance and HOA (if applicable). The rate on a HELOC will fluctuate with the market whereas a cash out refi rate will be fixed, so it depends on your risk tolerance in the instance rates were to go up.

[Marquise Bailey-Dillard]

Cash out refi may be out of question for me. My rate is so low (2.7) that I’ll never get that rate again.  

Im really considering half Heloc and half hard cash for a down payment 5%. I know I'll have PMI until I reach 20%. Home prices in Massachusetts are way to high and I don't have the 20% right now for a down payment.

What are the cons of doing half heloc and half cash ??