All Forum Posts by: Kelvin J.

Hey all

I just got off a call with a mortgage Broker. They told me it is pretty common practice to purchase a house as your primary residence with 3% or 5% down, wait the required year (I guess specifically for FHA, USDA) then move out and get renters in. No permission from the lender needed, no punitive interest rate hike, just a change in insurance policy and lost homestead. It also means avoiding a huge 20%-down investment loan up front, higher interest rate, inflated insurance and huge difficulty refinancing to get cash out at 70% LTV down the line.

I know it is a slow way to build a portfolio but is this correct?

The reason I asked is because I went the investment route (to take advantage of the increased income/buying power I would get from the cash flow generated for the next loan) and while I have better income, I now have a lot of capital tied up I can't release easily or cheaply. Nor can I sell without incurring capital gains tax or qualify for an equity line of credit as I don't live there. I suspect I may have taken the wrong route...

Thanks

Hi Paul. Are there any events coming up? I'm over in Santa Rosa beach , so close enough to join in.

Thanks, Kelvin

Originally I wanted to buy a rehab to turn into a rental that cashflows. And it does, pretty well, and would still cashflow if I could take my capital back out. Unfortunately, the lack of deals on the MLS and in this beach area (and lack of funds to pay way below market value for cash) meant I only got a decent deal, not a steal, and so don't have enough spread to pull out my whole investment. The fees are high from what I finance options I can find, and at 75% of the ARV it's not worth the cost pulling out the portion of capital I can get. I considered if I broke even on this deal the education would make it worth while. It cashflows nicely but I can't see a way of releasing the capital to progress to the next deal. 

Thanks

I had a conversation with a Lending tree representative. Basically an investment loan comes in at 75% LTV at about 5% interest and 5K in fees (this is after spending a fortune getting the loan to begin with 6 months ago). It only releases about 18k in capital and is just not Worth the cost. It would be better to move into it and refinance as a primary residence or sell it. I can't see another way to release the capital. Any thoughts? Equity line of credit maybe?

Hi all

I am looking to refinance my first rental as part of the BRRRR strategy but having real difficulty finding cheap finance (see below for a typical option). Even with a 780 credit score and no debt (other than the mortgage on this rental) I'm looking at $7000 closing costs. I have about $50k tied up in the rental that I'd like to release but can't make it worthwhile. Any thoughts?

 Dave, I think that's the best strategy and what I will most likely do. Thanks for your help on this, I appreciate it!

Thanks all.

 I don't think I will be eligible for exemption and may have to hold the property for a spell. It cash flows well with the capital tied up in it but it isn't ideal. I'm exploring options and a CPA will be the next step. 

Thanks again! 

I think tax time there will be costs to offset but this is more about pulling capital out and having more to utilize in the future, hopefully with a better strategy. With a re-fi not worth it I'm thinking of selling it while the market is buoyant and then reassessing. It's been a learning experience and as long as I don't lose money it will have been a win. 

Thanks all. 

I had to tie up a lot of capital to buy and rehab it (my first property), and the extra points and insurance costs as an investment property have been unwelcome. It would still cash flow after a re-fi, but on an investment property costs are 4- 5k apparently and at 75% LTV makes it less attractive (Quicken) as I wouldn't pull enough out to make it worthwhile. Selling it after a year would release all capital and make a profit. As it stands I don't think I can afford to get a second property in my area. I'm at the beach and prices are rising rapidly.

in hindsight I wish I'd moved in with roommates and house hacked. I would have avoided every problem. You live and you learn.

Another option is to keep it longer term and try to figure out another way of purchasing. 

So bottom line,  to sell it and avoid capital gains tax I would need to live in it for 2 years, even though it was only rented for a year? 

Hi Leigh. I think I had that in the back of my mind and then realized I hadn't technically lived there for any length of time. It will only have been used as a rental for one year. Any thoughts?