All Forum Posts by: Homa Teramu

I second Russel's assessment of the difference in markets - do your research on the neighborhoods in Baltimore that you are considering investing in and talk to some local investors and professionals who can help guide you.

Regarding sell vs. refi - that depends on your goals.  If you're investing for cashflow then selling seems like a no brainer, since this one is barely breaking even as it is, and will be in a negative cashflow position if you put a second mortgage/HELCO on it to pull out the equity.  If you're in it for appreciation then maybe there is an argument for holding on to it.

Good luck!

@Homa Teramu Yes, this is an interesting situation. 

I'd say that it depends on what you're looking to achieve, meaning if you are looking to scale somewhat aggressively you might want to consider selling and using the proceeds to buy something that is cash flowing. 

On the other hand, if you are looking to use real estate as part of your retirement plan, then when the rental is paid in 15 years, 2500/month is a good chunk of change. 

Now, if you are able to get best of worlds then why not, REFi and use the proceeds to buy something in Baltimore. However, you might want to ensure that the monthly mortgage doesn't go up (sometimes REFI-ing doesn't equate to higher monthly mortgage).  

Hope this helps, Homa. Goodluck. Thanks! - Ola 

@Homa Teramu Seems like if you had a 30 mortgage you’d be cash flowing $200-$300 per month depending on taxes and allowances for vacancy, capex, and repairs.  Anyway, if you can sell it, clear $100k, pay commissions, and walkaway with over $90k, I would sell it and use money for down payment on one or two new places that result in a better cash on cash return. I don’t know how the new tax laws will treat it, but previously you could avoid taxes on the sale assuming you lived in the property 2 of the previous 5 years prior to the sale. You may want to have a CPA check it for you.  Good luck!

Unfortunately, you likely don't have enough equity to get a HELOC. Most banks won't do HELOCs on investment properties. There are some that will (I have a couple so I know they're out there), but the LTVs are typically much lower than if it's an owner-occupied property.

For example, the banks I have done business with that offer HELOCs on investment properties will only do up to 60-65% LTV (sometimes lower depending on your credit score and DTI). You're already somewhere between 66-72% LTV, depending on whether you have 100K or 130k in equity.

Doesn't really matter what the rent amount is, except that a higher rent will help your DTI ratio. On a side note, there are different schools of thought on whether a 15-yr or 30-yr mortgage is better. Most prefer the 30-yr but it depends on your goals. However, you're likely going to find out one of the cons of the 15-yr mortgage and that is that it significantly increases your DTI ratio. With a 30-yr mortgage, you could always make a higher payment and pay it off quicker like a 15-yr loan if you wanted to, but with a 15-yr mortgage you can't pay less and you're going to be stuck with that entire payment counting against you when you go get qualified for another mortgage. Just something to be aware of.

Since you're not making money on this rental anyway, have you considered selling it and perhaps 1031'ing it into another property that would be profitable?

Montgomery County and Baltimore are drastically different rental markets.  Id make sure you know what you are getting into before you buy in Baltimore. Very differeng tenant bases.

I would sell primarily because the property is not cash flowing. My personal rule of thumb is that I have to get at least 1% of the value of a house in rent in order to hold it e.g. your property has to generate at least $2890.00 in rent.