Quote from @Jesse Dominguez-Castelan:
Back in 2021,I found myself an opportunity in Indiana, where I lived, to purchase a house. It ended up being a seller financed deal. As it was my first opportunity to get some skin in the game, I jumped on the deal and we agreed on a 5 year ballon (4% rate, amortized at 15 yrs). I lived in the house with my siblings (who pay me enough rent to cover the mortgage) for 3 years, until 3 months ago when I moved to Phoenix. I have about 20 months left until I have to get my own financing, but now I am stuck on what I should do. My siblings still live there, the house definitely needs some fixes, and now I'm out of cash. My original plan was to hold it long-term as a rental. I genuinely don't know what my next steps are, so I am looking for some guidance. Any help is appreciated!
It sounds like you're in a pivotal moment with a lot of moving parts—seller financing coming due, repairs needed, siblings renting from you, and a move to a new state. Here are a few steps you can consider to help make an informed decision:
### 1. **Refinancing vs. Selling**
- **Refinancing**: Since you have about 20 months left before the balloon payment is due, it's essential to start considering your refinancing options now. With a 4% rate on the seller-financed deal, you'll want to compare current market rates to see if refinancing is affordable and makes sense. Begin reaching out to lenders to see if you can qualify for a conventional mortgage, especially considering your change in financial situation (living in Phoenix, out of cash).
- **Challenges**: If the home needs repairs, lenders may hesitate unless those issues are fixed. You might need to take out a repair loan (like an FHA 203(k) loan) as part of your refinancing if the home’s condition will affect its appraised value.
- **Selling**: If refinancing isn’t feasible due to cash flow or repair issues, selling the property could be an option. You’ll want to weigh the potential profits from selling versus the costs of selling and moving on. Consider:
- Can the property be sold as-is for a decent price in its current condition?
- How does the local market look for selling now vs. in 20 months?
### 2. **Evaluate the Condition of the House**
- With limited cash, repairs might feel overwhelming, but some issues can directly impact the home’s value or ability to refinance. Prioritize repairs that protect the house’s value, like roof issues, plumbing, or structural concerns.
- Consider low-cost cosmetic upgrades that could improve rentability or sale value. Even though you’re out of cash, you might be able to finance some repairs or negotiate with contractors for a payment plan.
### 3. **Rental Income and Management**
- Since your siblings pay rent that covers the mortgage, you have a buffer as long as they continue living there. However, you need to consider:
- **Future rent increases**: Can you adjust the rent to help cover potential repairs or property management costs if you’re managing from afar?
- **Property management**: If you plan to hold the property long-term, it may be worth hiring a property manager to handle maintenance, rent collection, and tenant issues, especially since you’re out of state.
### 4. **Long-Term Plan**
- If your original plan was to hold it as a rental, ask yourself if that still makes sense given your cash flow, repair needs, and financing options. You might still be able to hold it long-term if you can refinance and get through the repairs.
- If not, selling may help you free up cash to reinvest in something else (either in Phoenix or elsewhere).
### Next Steps
- **Consult a mortgage broker**: They can help you figure out if refinancing is an option and whether there are any programs that can accommodate your situation.
- **Get repair estimates**: Even if you don’t have cash now, it’s good to know what you're looking at cost-wise for critical fixes. If you can address the most important issues, it may open up refinancing options.
- **Evaluate the rental market**: Look at what similar homes in Indiana are renting for. If your siblings move out, could you continue renting it out to cover the new mortgage?
Your decision comes down to how long you want to hold onto the property and whether you can secure financing to make that happen. Balancing the need for repairs with your cash flow will be key.
