All Forum Posts by: Account Closed

Thanks @Brian Sparr - this definitely changes things. A 1031 exchange is something I need to look much more into - I'm not sure if that's something I'd want to do or not.

I guess at the end of the day, we'll have to decide:

1. Sell and pay no capital gains OR

2. Keep renting for at least two years (so appreciation/rental income can outpace the addition of the $10-12k in capital gains taxes)

I'm leaning toward the latter, as this is a very good rental and the area has been growing very well so far. It will need a replaced deck in a year or 2 but that's all I foresee needing replaced.

Hi Tim,

Thanks for your advice. Interesting, so I can cash out tax free with a refi, but I would owe capital gains on the original purchase price down the line still?

So you are saying this example below is incorrect?

What I'm thinking is refinancing at an estimated appraisal of say $275k, with an original $209k purchase price. Would that reset the purchase price to 275k? So if for example, I sell 3 years after the refi at 300k, would I owe capital gains on (300k-275k) or (300k-209k)?

If I still owe capital gains taxes on the original purchase price of 209k, this definitely changes things. Thanks for your help!

TLDR; Will refinancing 3 SFH homes at the same time give me negotiating power to get better rates/lower fees?

Background: We bought SFH1 in 2015 with 3.5% down on a 15 year mortgage. Then we rented it out and bought SFH2 in 2017 with 5% down. We recently rented out SFH2 as well and bought SFH3 with 7% down that will be living in long term.

Concerns: We are paying a lot of PMI right now because we bought all the homes with little down. We've seen considerable appreciation due to the area/timing we bought, which is the reason for us spending so little down. I am trying to decide what to do with the rentals long term but we live in a good growth area (Raleigh) so I am hoping to hold on for at least a few more years.

SFH1 - 150k mortgage, 290k value, rented at $2k/mo, 15yr mortgage is $1700/mo, $90/mo PMI

SFH2 - 245k mortgage, 320k value, rented at $1700/mo, 30yr mortgage is $1700/mo, $200/mo PMI

SFH3 - 320k mortgage, ~400k value, 30yr mortgage is $2300/mo, $325/mo PMI

Looking to make a decision in the summer of 2020, so the numbers above are 2020 numbers. I've heard doing a cash-out refi is tax free on the capital gains, so with SFH1 coming up on the "occupy for 2 years out of 5 rule" I need to make a decision there. SFH2 is close to being 80% LTV now, and SFH3 will be 80% LTV next summer with a few upgrades (that I don't have a problem doing since we're planning on staying there long term).

Assuming I'm not tired of being a landlord by then, this is my plan:

- Cash out refi SFH1 to a 30yr and avoid capital gains on at least 70k of appreciation. This will reduce the mortgage to approx. $1200/mo and give me ~$60k back in the bank for future investments. 

- Refi SFH2 at the same time - could this get me slightly better rates or save on refi fees? Maybe I should wait until I come up to the "occupy for 2 years out of 5" deadline 3 years later and do a cash out refi then instead? I'd ideally rent SFH2 until at least summer 2022 anyway. 

- Then, spend what is needed (guessing $10k) to have SFH3 appraise for 80% LTV and do all 3 refinances at the same time? Separately from SFH1 and SFH2, I am planning on doing this regardless of the rest.

Basically, the deadline will pass for SFH1 to be capital gains free in the summer of 2020, and I am trying to formulate a plan for continuing to rent SFH1/SFH2 out until at least 2022. I know 1031 exchanges exist, but I am completely unsure if I'd like to do that down the road. I'm guessing I'll be tired of landlording by then. What would you do?

Thanks Henry! Great advice, where is the best place to look for Multifamily properties? I guess I should find a realtor specializing in that? It is definitely an option.

Home 1 - rented at $2k/mo, 15yr mortgage is $1700/mo, estimated value is $275k with $170k left on mortgage. 2600 sq ft right outside of downtown. Older house but fully renovated in 2016 besides plumbing (I need to check on plumbing health).

Home 2 - We are occupying costing us $1700/mo, estimated value is $315k with $250k left on the 30yr mortgage. New construction in 2017 and low maintenance. 1100 sq ft downtown but probably big enough for 1 kid coming soon.

Our family is growing so we are considering everything - selling all and upgrading slightly, buying a slightly upgraded third and keeping the others and everything in between like: selling Home 1, renting Home 2, and buying a new home.

We live in the RDU area which has seen great growth since we first bought Home 1 in 2015 for $7k down (FHA). That has turned into almost $100k now in equity. During that time, we also had my brother live with us, so we were also paying below market rent.

I'm also a little worried about a possible recession upcoming and the market slowing down. So, we could lock in our profit on Home 1 and sell but then we're paying capital gains on top of realtor fees. I know the cash flow isn't great on Home 1, but because its a 15yr loan, we are also essentially "saving" $1k/mo in equity on the payment.

There are so many ways to think about this situation and possible ways forward. I want to stay smart and objective and avoid ending up like everyone else in $500k houses with 30 yr loans but of course there are risks to what we're doing (and headaches with landlording). Part of me likes the idea of putting Home 1 and 2 with a prop mgmt company and buying a 3rd, but that's also adding even more risk.

Our cash situation is fine. I guess I just want to make sure we're staying on a good route and not making any mistakes undoing any of the work we've done (like selling Home 2 after only living in it for 2 years)

Is there any obvious answer/advice to this situation or better way to think about it? It can be hard to stay 100% objective when you're deep in it.

Does anybody have any great REI lenders they can suggest? I've been through a few and haven't gotten a great feeling from any of them so far.

Does anybody have any great REI lenders they can suggest? I've been through a few and haven't gotten a great feeling from any of them so far.