All Forum Posts by: Heath Thomas Jr

@Patrick Chafe I think it absolutely makes sense to take advantage of the low rates and take some cash out.

While it is the right thing to consider the downside, rent decreases of 20% are highly unlikely. The fact that it happened during Covid was a very unique situation, but you have probably noticed that rates are already recovering if not accelerating. It is a better idea to consider what rental rates do during recessions, which usually never drops that considerably. Housing prices are a different story, but if you have a 30 year loan and intend to hold the rental for the long term, you also shouldn’t worry about that.

Now, even if this worst case scenario did happen and you are breaking even on the property, would you have to sell immediately? I imagine you have a job and some savings that could cover any shortfall for a reasonable amount of time.

You touched on it some, but it is also important to consider the upside. Having $40k+ at your disposal right now to jump on new opportunities or even just investing in the stock market in the meantime offers the potential for a much higher rate of return.

If you are ultra conservative, take half as much money out so you have more buffer on your monthly payment. PM me if you want to discuss more!

William, yes I think you are overcomplicating it. You wouldn't need to pay off the FHA loan fully before getting a cash out refi on it. You could just start off with doing a refi on the FHA property into a conventional loan since you already have plenty of equity, and I agree if you only do one thing, it should be refinancing the FHA. You probably wont be able to take a ton of cash out but a lender would be able to help more on that. For the rest, it comes down to your preferences, but if it were me, I would cashout refi the duplex owned outright because debt is so cheap right now. For the other duplex, it would depend on the current rate, but again, it may be worth doing another cashout refi if your goal is to buy a larger building and leave some of the cash as reserves for any repairs needed on all the properties. PM me if you have questions on my thought process.

Welcome to BP @Ilya Schroeder! I just moved to Towson myself so I would love to chat if you are up for it.

Hey Patrick, first off, congrats, as your situation is a good problem to have. I agree with the banker that said you should refi the two family even if just to get rid of the pmi. That is just an added expense and those savings could be used to pay down the new mortgage faster if you want to be ultra conservative. However, you seem to have a ton of equity built up, so in addition to refinancing to get rid of pmi, you could also get some cash out if you intend to continue buying properties to use as a down payment. 

If your main issue is to get rid of the debt, not add additional time to the loan and you don't mind paying more monthly, consider refinancing into a 15 or 20 year mortgage to still get rid of the pmi.

@Kenyon Berry I agree with everything @Brenden Mitchum said, but I wanted to add a couple things. With the 203k or homestyle, you could potentially bid higher than someone offering conventional because lenders will base the loan off the ARV instead of the appraised value. Also, if using FHA in general has not been an issue for you, it still makes sense to use the 203k, despite the added requirements, because you will not have to tie up all your cash. PM me if you want to chat more!

Marvin, if you refi your FHA loan into a conventional, you can use FHA again on a 1-4 unit as long as you live in it again.

Yes you are decreasing your profits, but you are doing that to leverage up your capital. There are obviously risks with doing this, but people are banking on enough margin of safety and return of capital to make it worthwhile. 

In your case, it definitely sounds like it would make sense to do a cash out refi since rates are still historically low and it could free up a ton of capital to do more deals and/or reinvest at a higher return.

You may not have the option to use FHA unless you will also be living in the property, with a couple exceptions. If it is a multi-unit and you will be living in it, I agree it makes more sense to go that route and not tie up additional capital.

Hobart, another option would be getting an FHA 203k loan. This minimizes your down payment requirement and you wrap the renovation cost into the loan. This loan process comes with a few more hoops to jump through, including living in one of the units for a year, but it could be a good option to limit your cash outlay and get the place renovated.

A couple things to add to Da'Shawn is that the full option requires you to use a HUD consultant to help you through the process, and you should plan for a longer closing time than a normal loan due to added paperwork and the coordination required.