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Updated almost 3 years ago on .

User Stats

21
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5
Votes

Do I refi & buy or do I sell and buy? Hardest decision of my life

Andres Castaneda
Posted

Hello all!

I have a pretty unique opportunity ahead of me and don't really know what angle I should approach it at. Every day I wake up, my mind changes. This is my largest project to date and right now I am full leveraging everything I can in order to buiild a portfolio / passive income.

I bought my first property 3 years ago, it was a distressed single family, renovated it and sold it after 2 years of ownership. Last year after the sale, I bought a 4 family with an FHA loan and rehabilitated an old space in the attic to bring back a legal 5th unit to the property with the equity of the sale. My renovation cost will be about 150k once completed. I will be into the building about 700k total. I just got an appraisal back and my new value is at 940k.

My initial plan was to hold onto the building for the positive cash flow and refinance to recoup my investment, if I were to sell I would only sell to purchase. With my recent appraisal, I will be able to pull out 110k(70% LTV - debt owed) from the property. Given that I am refinancing out of my FHA to a commercial loan, I will be able to re-use an FHA loan for another 4 unit purchase. My neighbor next door has agreed to hold the property to sell it directly to me at 650k (Market rate 4 family can get 720-750k) so I will have immediate equity. I also know of another 4 family owner a block over that just today also agreed to sell directly to me at 620-650k range( both I have been in communication with for over a year).

Here are my scenarios

Option 1

Sell at 940k

Profit after mortgage/ closing costs 400k

Given I'm into the bulding 150k cash out of pocket , I would be liable for taxes on 250k.

25% tax on 250k takes me down 67.5k.


400k-67.5k = 332.5k cash in pocket

Use 35k buy 4 family next door. Cash flow 2k/ month right away... At proforma would be 3500/month

Use 70k buy 4 family around the corner (Hard money) Cash flow would be identical. 2k cash flow after 3 months and at proforma 3500/ month

Leaves me with about 210k in pocket, lets say 40k in updates between both so total would be:

170k in pocket, 8 units, 4k cash flow with potential to cash flow 7k. Equity around 200-250k

Option 2


Refinance and keep building.

Cash flow 4200/ month. + 110k in pocket

Buy building next door FHA 35k

75k in pocket + 20ish repairs = 55k in pocket

9 units, 6200 cash flow + 45k in pocket. Equity around 350k

I can stop there OR go FULL leverage and buy the 3rd building (10% down hard money)

Have 0 cash from refinance left 

but now have 

13 units, 8200 in cash flow with potential to have 11,200 in positive income. Equity around 450k

Given the state of the market and increasing interest rates I am not sure if I will be able to get a higher value for some time. Do I leverage the high refinance appraisal or leverage a sale? Is the 170k+ in pocket more valuable than having the 13 units? I can use that money to buy a 3rd building with hard money but finding these deals have taken me years worth of follow ups and I know they are hard to come by. I don't come from money, I have leveraged and worked my way to where I am so the 170k in pocket would provide me with financial security I have yet to experience before.

But also, I am 26, no kids, no major expenses. Do I just say **** it and full send the 13 units and spend a few months recouperating?

HELP! I am torn. Any and all advice is welcome