What would be your next step in my situation?

Question

Hello BP forum readers,

I purchased my townhome, that I currently reside in, in a resort town in 2018 with an ex-partner.  We refinanced in 2020 to a 2.75% rate, but after the cash-out refinance to pay my ex out, my rate is now 4.7% (awful timing to break up).  Just a little background for context.  The good news is I am sitting on roughly $230,000 of equity.  I could likely rent my place for $2.7-3k (sadly barely covers all expenses because of the new cash-out refinance loan).  It's a 2 bed, 2.5 bath townhome that is walking distance to the resort.  I am open to house hacking to get into an FHA loan at 3.5%, and if absolutely needed I could likely put up 15-25k (450-700k home value) towards the down payment myself to get into the loan.  I am not afraid to pull funds from retirement accounts to help fund my purchase as I think real-estate is likely a better use of my money.  I have an 800+ credit score.  My income is what I think is holding me back from pulling any triggers, ~$72k (I have a roommate to help me afford my place).  Given all these details, what's your next step?  Would love to hear any and all advice to help me formulate a plan so I can stop feeling paralyzed.

Thanks!

Ben Rhodin · Answer

Hey @Jason Strauss! As @Ben Einspahr mentioned, the large equity portion is not a bad situation to have. This is a common question and a decision that can be easily solved. I think you are on the right path with the new House Hack purchase, it will be the least capital intensive and will minimize your housing payment still.

The first step there is to talk to your mortgage broker and see what you can qualify for, and tell them to factor in if you rent your current place. That will give you a baseline for if a house hack is even an option. If it is, then great, if it isn't then we will need to look at other options, like purchasing straight investments. From your description of the property, I would see if there is another option for renting it. If it is near a resort, you may be able to do an STR, or MTR and increase that cash flow making it a viable investment. However, even if the property breaks even, and you pull a HELOC on it before you move out, it may be a worthwhile buy-and-hold play. You can use the HELOC to continue to fund projects or properties, and you can use a new low-down payment loan to buy a new primary. Without having all the info and all the pieces, I can't fully advise which way to go. But I think you have the right path and you just want to put the pieces in the right order. Feel free to reach out and we can dive into it a bit more!

Ben Einspahr · Answer

Hi. @Jason Strauss. Thank you for running through all of those details. Sitting on a good chuck of money is a good problem to have. Now, like you said, finding out what to do is the next step. I can tell you what i would do but that might be a complete 180 from what you want to do because we have different goals and some people are more equity/ net worth growth focused (like myself) and others are cashflow focused.

If it were me, you have a excellent living situation: house hack (living with 1 roommate) with a 4.7% interest rate... not bad but could be a whole lot worse. I would take out a HELOC and and purchase small investment property in the springs or denver metro. Yes this rental will not move the needle too much for you from a chase flow prospective, BUT you are acquiring another asset that will help be a vehicle to future acquisitions. That is where wealth is built.Listen to this BP money podcast where Mindy and Scott interview Chris Lopez - "unlocking your home equity". Excellent listen and might help you get one step closer to that next decision... or at least eliminate a few :) I will follow up with a few other helpful resources.