First investment property
My wife and I are looking to get our first investment property. We currently own a single family home in Bella Vista, AR which is our primary residence. We refinanced last year (Apr 2021) out of a USDA RD loan from 2017 at 4.25% to a conventional loan at 2.75%. We also have access to a HELOC of $52k on our primary residence.
We are open to moving into another fixer upper and turning our current home into a short term rental, long term rental, or selling if that's what makes most sense. Our current home could probably use $8-12k in work should we look to turn it into a long term rental or i'm thinking $12-16k to turn it into a short term rental or sell it. We've also considered staying in our current home, holding back on doing the improvements on it since we're living in it and could go without the improvements and just put that money into just buying an 2-3 bedroom SFR investment property.
The HELOC is there in case we need it for repairs or downpayment on a property. Looking for suggestions from more experienced individuals as this will my our first REI move. Thanks in advance!
Current Loan -Primary Residence
ARV: $325,000
Current Principal Balance: $154,130.19
Mortgage Payment (Monthly): $648
POA (Monthly): $37
Annual Taxes & Insurance (Annually): ~$3,000
Loan Type: Conventional
Remaining Term (Years): 28.5
Interest Rate: 2.75%
Luis,
You have the $52K in the Heloc so I would say use it now for a down payment and jump into an investment property. You only need 15% down so make the move and get into a rental sooner then later. I would start looking for homes that need a little TLC up to the $200K price range.
I would also reach out and get a pre-approval from the bank to go over options.
Personally I'd use the HELOC to brrr, flip, anything that increases liquidity. Right now your primary residence is a gold mine, and will likely only do better over time. I'm a fan of the vibe in NWA… if you move out, to rent out, you might forfeit the capital gains exemption.
Also, sounds like you are looking at it like you can park that money somewhere else via a down payment which is fine, but also sounds like your liquidity is connected largely to the equity / HELOC from the primary, if that's true, focus on liquidity growth, not getting it tied up in the name of "equity."
Might be personal perspective but I see capital at its best when it’s a river flowing and growing not a pond hoping for more rain. In other words, put the capital to work in a way that has probable and immediate growth ahead.
Best wishes to your success.
Quote from @Luis Alvarado:
I think Nate nailed it, and I like the analogy of a pond vs. river. I might have to steal that! :)
Quote from @Nathan Gesner:Dude I love your content so steal away sir :)
Quote from @Luis Alvarado:
I think Nate nailed it, and I like the analogy of a pond vs. river. I might have to steal that! :)
Wow, you definitely have some ammo to be doing great things in real estate.
I'm an acquisitions analyst at a real estate investment advisory firm in Denver and would be happy to go over our two midwestern markets of investment with you. Many of our clients are buying turn key properties and getting strong cash flow even at 7% interest.
Thanks all for your insightful responses! It's great to get feedback on what others would do in my shoes.
Man I love that you turned 0% down from the RD loan into all these options. Kudos to you for that! I also love NWA and want to visit more often, I am a neighbor to the west.
I feel like you’ve set up a great foundation for brrrr’s and if it was me it would be hard to sell ANYTHING below 3% rate. Heck, anything below 6 right now for the next few years, we all should hold.
I'd probably try to continue to find ways to create equity with the HELOC especially if you can recycle it a few times via brrrr's or flips. I know NWA is becoming a hot ticket market and harder to find cheap deals, but still, you could look to try.