What would YOU do with so much equity in a new build first home?
Real Estate Agent · Queen Creek, AZ · Member since 2022 · 2 posts · 1 vote
Hi guys,
So I'm in an interesting position. My wife and I bought our first home, a new build back in Feb 2021 in Queen Creek. It is still under construction, haven't even gotten to a pre-drywall inspection phase. We will probably have around 200k equity in this home by the time we move into it more or less. We bought for 530k and it will most likely appraise for 700-750k, all depending on when it closes. 5bed 4bath 2700sqft in a great neighborhood.
My question. Now that I have more of an REI mindset, seeing my primary as a liability more than an asset, I would preferably like to rent out the new build, buy a home with a guest house/guest quarters to airbnb or rent which would help pay our primary homes mortgage. I have a family of four with 1 more on the way, so house hacking a duplex wouldn't be feasible. What would YOU do in my situation? Is the way that I'm looking at it the right way to go? Any input would be greatly appreciated!
Hi guys,
So I'm in an interesting position. My wife and I bought our first home, a new build back in Feb 2021 in Queen Creek. It is still under construction, haven't even gotten to a pre-drywall inspection phase. We will probably have around 200k equity in this home by the time we move into it more or less. We bought for 530k and it will most likely appraise for 700-750k, all depending on when it closes. 5bed 4bath 2700sqft in a great neighborhood.
My question. Now that I have more of an REI mindset, seeing my primary as a liability more than an asset, I would preferably like to rent out the new build, buy a home with a guest house/guest quarters to airbnb or rent which would help pay our primary homes mortgage. I have a family of four with 1 more on the way, so house hacking a duplex wouldn't be feasible. What would YOU do in my situation? Is the way that I'm looking at it the right way to go? Any input would be greatly appreciated!
Congrats! Sounds like you have a good deal on your hands.
Not to totally burst your bubble, but I wouldn't count on a crazy appraisal- if this is a new build, appraisers don't usually go nuts on valuation, their primary goal is to make sure there is value there for the bank to finance the purchase price, so it's not often they go terribly far over that, even if there is obviously more equity.
You didn't say anything about your cash position or income, but generally I find that a HELOC on your primary is the least stressful and cheapest way to access that equity. I'd start there and move forward with the intention of using that LOC to start to scale and create more equity for yourself.
Best of luck!
Firstly, congratulations!
I have some clients in very similar situations. Although house hacking can be a great source of additional income, it's not the only option.
If you are thinking of renting out your new build, also consider this:
Most houses in the 1mil range often don't cashflow well as rental properties. If you sold this new build (or even refinanced it) and used the built in equity you have to buy lower priced SFR, which on average make a return of 12%. You have around 400k in equity, so that could mean $4,000 a month in cashflow. With this money, you can rent out another residence to make your primary, and not worry about getting another mortgage and tying your equity up. Depending on where you live, this cashflow could have your family living for free!
Good luck with your decision!
Firstly, congratulations!
I have some clients in very similar situations. Although house hacking can be a great source of additional income, it's not the only option.
If you are thinking of renting out your new build, also consider this:
Most houses in the 1mil range often don't cashflow well as rental properties. If you sold this new build (or even refinanced it) and used the built in equity you have to buy lower priced SFR, which on average make a return of 12%. You have around 400k in equity, so that could mean $4,000 a month in cashflow. With this money, you can rent out another residence to make your primary, and not worry about getting another mortgage and tying your equity up. Depending on where you live, this cashflow could have your family living for free!
Good luck with your decision!
Mychael, congrats on the easy equity while waiting for it to be built. Talk to your wife and see if she is on board to sell it. Another option is stay there for a bit and refinance it and take out your capital. Inflation is higher than your interest, then maybe look for a smaller home as an investment rental. If you have cash reserves and will not be losing sleep at night go for it. Just make sure after all expenses are figured out the rental is positive cash flow.
Thanks Ed & Antoine. Yea, I'm not following Antoine on the 400k equity. I doubt we sell it, would rather keep it and refinance. Just don't want all the equity to sit there without being used.
@Mychael Reyes With real wage growth negative, energy costs soaring, and the Federal Reserve tightening we will very likely be in a recession soon. My advice is to sit tight and with for the recession then see what is on sale. Might be housing, might be something else.
Hi guys,
So I'm in an interesting position. My wife and I bought our first home, a new build back in Feb 2021 in Queen Creek. It is still under construction, haven't even gotten to a pre-drywall inspection phase. We will probably have around 200k equity in this home by the time we move into it more or less. We bought for 530k and it will most likely appraise for 700-750k, all depending on when it closes. 5bed 4bath 2700sqft in a great neighborhood.
My question. Now that I have more of an REI mindset, seeing my primary as a liability more than an asset, I would preferably like to rent out the new build, buy a home with a guest house/guest quarters to airbnb or rent which would help pay our primary homes mortgage. I have a family of four with 1 more on the way, so house hacking a duplex wouldn't be feasible. What would YOU do in my situation? Is the way that I'm looking at it the right way to go? Any input would be greatly appreciated!
Congrats! Sounds like you have a good deal on your hands.
Not to totally burst your bubble, but I wouldn't count on a crazy appraisal- if this is a new build, appraisers don't usually go nuts on valuation, their primary goal is to make sure there is value there for the bank to finance the purchase price, so it's not often they go terribly far over that, even if there is obviously more equity.
You didn't say anything about your cash position or income, but generally I find that a HELOC on your primary is the least stressful and cheapest way to access that equity. I'd start there and move forward with the intention of using that LOC to start to scale and create more equity for yourself.
Best of luck!