Does this make sense?

Question

Not sure if this is in the right place, since it's not a true BRRRR, but it closely resembles that...

I own a rental in the Pensacola, Florida area (I live in Ohio, it used to be my primary residence over 10 years ago).  I've been wanting to sell it because it's gone up in value and I'm tired of being an out of town landlord, and I figured it'd be nice to take my equity and re-invest it. However, my tenants just renewed their lease, so I'm looking at another year of collecting easy rent checks.

Anyway, I thought about looking into doing a cash-out refinance to go ahead and tap some of that equity while keeping the rent checks coming (I'm probably also going to look into a property manager, but that's a different discussion).  Here's what I'm looking at, as far as numbers go:

Current Mortgage balance: ~$120,000 / Current House Value: $~200,000

Current Rent: $1,450

Mortgage (P&I): $580

Monthly Escrow: $150

If I refinance, it's looking like it could increase my monthly P&I by roughtly $150-$200.  The current loan is a VA loan, so I'm additionally debating between keeping it a VA loan or transitioning to a conventional loan.

Any thoughts/advice?

Jacob Laginess · Answer

I would use the money to buy more real estate. My initial plan was to have all of my rentals be close to me (I live in Ohio), but now I'm starting to consider investing more in Florida. Since I'm active military, I've been able to keep my Florida residency and thus no state income taxes. I imagine that, if I start investing in Ohio, I'll have to start filing taxes in Ohio for any properties that I own here.

Erica Osborn · Answer

@Jacob Laginess

Hey Jacob! I'm a Pensacola property owner too. I'm long distance and a military family! I have a great PM recommendation that has been awesome for me and my properties. Realty Masters, my personal PM is Lauren Claudio and I would highly recommend them!

Brandon Goldsmith · Answer

If the property has gone up in value and the money is just coming in with minimal effort then refinancing looks like the better option. Most people choose to scale that way. @Jacob Laginess

Jonathan Styer · Answer

One of the great things about Real Estate as an investment vehicle is your ability to leverage your cash. If you're increasing your P&I by $200 you're still doing well cashflow wise and now you have an extra $40k to purchase more properties that will also cashflow. Seems like a no brainer to keep it and do a cashout refi right now while rates are low. Finding a good PM will most likely help to ease the concern of being an OOS landlord as well.

Erickson Sainval · Answer

I am in Pensacola now and the market is only going to improve. I would refinance and get that property manager to save you the headache. Always better to hold, unless you have a goal that requires you to sell for an even better return.

Jacob Laginess · Answer

Thanks for the referral, I'll have to look into it. I'm really leaning towards getting a PM just to make life easier.

Jacob Laginess · Answer

Yeah, I think that I can increase my cash flow by more than $400 (at least) to offset that increase in P&I, so I'm leaning towards doing it. I've already contacted a few mortgage companies. The only flaw in my original idea is that I can't do a VA cash-out refinance, since I no longer live in the house.

I'm definitely looking at a PM now, I think that'll make my life a lot easier.

Doug Spence · Answer

@Jacob Laginess If you sold or refinanced, what would you do with the money? If you plan to invest it that money, would the return on that investment be better than your return on this Pensacola house?

Timothy Hero · Answer

Go private and get it off your credit.

Nick Velez · Answer

I think it ultimately depends on two things. If the market is going to remain around where it is today, and if you will do deploy that equity to bring you a bigger return than it is costing you. I could see Pensacola continuing to appreciate so I feel as if getting a good property manager would alleviate the headache of being an out of state landlord. I believe refinancing out of a VA loan would give you your entitlement back which could be useful if you decide to purchase another primary sometime in the near future. I do have some connections in North Fl so I will reach out and see if anyone has a good PM!

Does this make sense?

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