So last year I attempted to do a cash out refinance on my duplex in Dallas, when I made my first introduction to yours truly
Mr.
"Texas Section 50(a)(6)". At the time the lenders told me either no it
could not be done or that is could be done, but I would need to convert
both units as investment properties. At the time I was renting out one
side for $2600/month and my mortgage was $2675. I was living in a 4 bed 3
bath unit next door 10 minutes from downtown Dallas almost rent free,
but what I had learned was that if I ever wanted to pull equity from
this property I needed to move out and lease the other side. So that is
exactly what I did. Left my property to move into my In-laws and now I
had 2 units at $2600/month for a total of $5200. I was still self
managing so cost of ownership did not change much
Soon after
Covid showed it's face and we all went underground, but that did not
stop me from looking into what was possible and what I needed to do to
make it a reality. I came across a post on BP about Condo Regime which
basically is a way that one can take a side by side duplex and
physically and/or legally on paper split the unit up into 2 separate
entities with separate addresses and tax information. So once I started
looking at the refinance options again, I started looking into this option of splitting up my duplex. very soon I found out that the physical separation was not an option because it required me to put up a firebreak wall from the foundation to the roof through the middle of the 2 units.
This property had just been remodeled from the studs so that was a no
go. Also I had spoken to the city's planning department and the cost and
paperwork was a lot without any guarantees that even if everything was
done to the letter would we get the final stamp of approval. So then
what about the splitting up at the county tax level. I got with an
awesome lender that I met on BP who knew what I was talking about and
the ball started rolling again. He put me in touch with a great title
company that knows there stuff. They came back and told me within a day,
that there was not need to pursue splitting up the units, because that
had already been done for me years ago. That was awesome news, but I
was still planning to do a investments cash out as I was no longer
living there and the cost of doing each separately meant paying twice
for closing /Title/Inspection .....etc.
Well about 1 month ago,
just as I was about to pull the trigger with my lender, the title
company reached out to us. My acquaintance with Mr. "Texas Section
50(a)(6)" was not yet over and here is how it was explained to me: Texas
loan security property law says that if i own a single home in that
state and I live in that home or not, then that home is my homestead by default;
but technically I have two properties right? Well yes , but if you read
on it also states that no 2-4 unit or investments can qualify for a
cash out refinance if it is also your primary residence. Remember now
that almost 2 years ago I moved out and turned my unit into a rental so
the law now brackets me in on both ends, my property does not qualify as
a single family residence for cash out refinance and is disqualified a
as investment as well because by default it would be considered my
homestead.
What will I do at this point, you ask? Well I have 2 options:
- I
could pursue two separate cash out refi's. one unit would need the be
the investment unit and would have it's own loan. The other unit I would
need to move back into it and make it my primary residence and take a
conventional cash out in this case, which is all doable because the
units are legally already split, just sucks that I would have 2 of
everything during that cash out refinance process ( 2 title searches/2
inspections/2 closings/ 2 appraisals).
- I could seek
out a new property and make that my primary residence, but by whole plan
was to cash out and go find me a small multifamily and start to grow my
portfolio. I really want to maximize my return and the 1 unit 1 roof
deal does not really do that.
Outside of these 2 remaining options it feels like I have turned over every stone and looked into every nook and cranny. So that is where I find myself today on September 20th 2021.
If anyone has additional nuggets of wisdom that I have not yet considered please share. I hope that my explanation of
Mr. "Texas Section 50(a)(6)" did not confuse you anymore that why this law would still be on the books.
