All Forum Posts by: Sam Scott
Sam Scott has started 1 posts and replied 8 times.
Post: Is a refinace worth it?
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Certainly something to consider. Thanks again
Post: Is a refinace worth it?
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Originally posted by @Joe Villeneuve:
Originally posted by @Sam Scott:
Thank you for sharing your perspective. I understand ROI and leverage are tricky if it's based on 0.
My cash flow would be greatly improved, but that comes with the opportunity cost of paying off the HEL with cash that is profitable elsewhere.
OK. If you refi, and don't payoff the HELOC...what is the cash flow then?
Not an option I don't think. I'm at 90 CLTV. Looks like I need to get to 75%.
Post: Is a refinace worth it?
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Thank you for sharing your perspective. I understand ROI and leverage are tricky if it's based on 0.
My cash flow would be greatly improved, but that comes with the opportunity cost of paying off the HEL with cash that is profitable elsewhere.
Post: Is a refinace worth it?
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I detail that above. It would free up ~150/month in cash flow, but I'd subtract the opportunity costs of the cash. So only net increase of 40/month. I don't think this is worth it.
I'm not a pro and just rent this one house since it was underwater for so long. I was breaking even on cash flow, so haven't kept very close track of things.
Post: Is a refinace worth it?
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Originally posted by @Joe Villeneuve:
Forget the total interest rate...you're not paying it if you have positive cash flow...the tenant is. If you don't have positive cash flow, then you're just using interest rates to rationalize the end result.
How much out of pocket cash will you have put in (total...from the beginning) if you refi?
I don't follow. The rent is the rent I get, so interest rate does matter since that affects my profit. It currently cash flows positive.
Not sure how to even get total cash spent from the start. This was a house I bought at the top of the RE bubble in 2006 to live in. Moved out a few years later and have been renting every since. Still worth less than what I paid for it.
Post: Is a refinace worth it?
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Originally posted by @Joe Villeneuve:
Originally posted by @Sam Scott:
Monthly payments aren't my main concern. The property breaks even with the first mortgage, and I used the funds from the 2nd for other investments, so can't count that against this property.
I think break-even would be about two years. But, to even do that, I'd have to pay off the HEL and unwind some other non-RE investments.
Monthly payments should be your concern. How else will you be able to judge when you're going to break even and start making a profit? Since everything else is paid for by the tenants, you break even when you recover all the cash you put in. The more cash you add to the mix out of pocket (i.e...helping the tenant pay off the mortgages), the more cash you have to recover before a profit is made...and the longer it takes to get there.
Well, I think that's like the tail wagging the dog. What influences the monthly payment is LTV, interest rate, term, etc. The monthly payment is the net result, so by focusing on that, I'd lose the perspective on it's inputs.
For me at least it's get a bit more complicated since I've used the HEL for other liquid investments which return > net 3% after taxes I pay on the HEL.
For arguments sake though, let's say I refi into a 5/1ARM at 4.5%
fees: 1% 2300
new payment 1191
current payment: 1338 (not including the 500/month on the HEL)
difference: 147
I'd have to pay off the 40k HEL. Let's say I am earning 7% on that money (so net 4%) = 133 *.78 (taxes) = 104 profit opportunity cost each month I'd be giving up.
So it seems like it only saves me 40/month, almost a 5 year break-even.
Post: Is a refinace worth it?
- Posts 8
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Monthly payments aren't my main concern. The property breaks even with the first mortgage, and I used the funds from the 2nd for other investments, so can't count that against this property.
I think break-even would be about two years. But, to even do that, I'd have to pay off the HEL and unwind some other non-RE investments.
Post: Is a refinace worth it?
- Posts 8
- Votes 0
First mortgage, 230k, 5.125, ARM (40 year, about 14 years in), just reset in July (locked in may/June), up from 5%
2nd, HEL: 40k @ 3.75% (2 years into 10 year)
Property value, 300k
So that puts me right around 90% CLTV. The original mortgage was owner-occupied, but I since turned it into a rental. So, a refi would require an investment property loan.
I could pay off the HEL if needed, but not too keen given the good rate.
Is a refi worth it? Investment property loans are in the mid 4%, + fees, + I probably have to pay off the HEL to get to a reasonable LTV.
My current tenants have expressed a mild interest in buying the house next year. Nothing more than saying, "hey, we may want to" and I said, let's see where we are next year.