Hey BP! Long time lurker and knowledge sponge here.
I started the process at the beginning of January to do a Cash Out Refi on my private residence. The plan since initial purchase back in Feb of 2020 was to live in the house and do as much DIY'ing as possible to increase the value. After the 2 year "has to stay primary residence clause" (which is met this coming Feb) this property would be my first rental in the area, and utilizing the cash out refi, would give me the money to move into my next property without any extra out of pocket money.
I'll be sure to come back and update this for any newcomers that want to hear from beginners or are still in the "learning before you leap" mindset.
I'll list the purchase info and criteria as well as the rental potential in the area and the cash out refi results below.
Initial Purchase:
3 bed / 1 bath / 1000sqft / 0.46acre / built in 1980 - Appraised at $140,000 in Johnson City, TN - Feb. 2020
Credit Score at the time: 648 (This was a focus of mine as I had been repairing previously damaging years in my early 20's)
Purchase Price: $132,000 using an FHA 30-year loan at 4.625% / Closing costs from me $4,666.63 / After all fees and closing starting mortgage amount was $129,609.00 / Monthly Principle, Interest, Escrow (Insurance, Property Tax, Mortgage Insurance) payment: $869.12
Rental Potential:
Johnson City TN is home to East Tennessee State University and close to Bristol TN for all you NASCAR and drag racing fans. Since it's located just a short 3.5 mile drive to ETSU campus as well as the VA hospital, Instates, Shopping and Restaurants, it's a great area for rental property, it's also just far enough away from all that to be surrounded by quiet fields and mountain views. Looking at current comps in the area for similar property type and quality positions this property to confidently be rented at $1450 per month. As everything sits now, after all expenses including mortgage payment, maintenance, capex, vacancy, etc... this property at the above rate will profit $464 per month!
Cash Out Refi Expectations:
After a brief conversation with my mortgage broker and going over quick numbers and some market research on their end, the expectation so far is the new value of the home should be around $188,000 - $195,000. These are loose figures and I was told due to the market it could be even higher but I don't like to plan for higher, I'd rather be surprised than disappointed. This should yield around $25,000 - $35,000 cash back to me after doing 80% Loan to Value. If we factor in the lower interest rate and losing the mortgage insurance, even with the higher mortgage amount, the monthly payment itself for the house and escrow should only increase by about $40-$50 a month! It helps that I've continued to improve my credit score to help get those lower rates which I believe should be sitting around 740-750 now.
I'll update this with hard numbers after the refi is complete! Feel free to ask any questions and I'll do my best to answer them and help anyway I can.
