Need finance advice given current investment property and best path forward
Hi - I currently own an Investment property. My payments on the property are $2,700/mo and it currently rents for $3200/mo. I bought it in 2016 with a 30-year fixed rate mortgage on it at 3.5% interest. The remaining loan is $330,000 and the appraisal value for the home is currently $500,000.
Outside of an employer 401k and the equity in this property my wife and I don't have very much savings. We are currently renting but are planning on starting a family and would like to purchase a single-family home for us to live in. We would also like to get into more real estate investing.
Given that we have a cash-flow positive rental, want to purchase a home for ourselves, and also want to pursue other investment properties. We are looking for some financial advice on the best path forward given that nearly all of our savings are tied up in the current rental property.
Does it make sense to sell the current property and use that profit to fund both our house and an investment property? Or does it make sense to pull the equity out of our current investment property?
Happy to answer any additional questions you would have and any advice would be greatly appreciated!!
When you say your payments on the property are $2,700.... what do you mean? The PITI? Or PITI plus all other normal expenses (vacancy, excap, maintenance, management, etc.) How much are you actually cash flowing each month?
It sounds like you may be able to pull some equity from your present property - this would allow you to purchase another home, get rid of your monthly rent bill, while keeping the original property in the black and covered by rental income. Alternatively, you could also sell your present home, house-hack a duplex (or 3-4 unit) and again.....lose that monthly rent payment.
None of us can actually answer your question without more numbers, but it sounds like you have some good options.
@John Furey
I'd sell that thing even though you have a great interest rate. You're not making much off it. If you can deal with house hacking, I'd buy a duplex or quad. Do a 1031 exchange on it and live for free for a year. Then repeat after another year and buy a SFH for yourself with 5% down.
Quote from @Tim Johnson:
When you say your payments on the property are $2,700.... what do you mean? The PITI? Or PITI plus all other normal expenses (vacancy, excap, maintenance, management, etc.) How much are you actually cash flowing each month?
It sounds like you may be able to pull some equity from your present property - this would allow you to purchase another home, get rid of your monthly rent bill, while keeping the original property in the black and covered by rental income. Alternatively, you could also sell your present home, house-hack a duplex (or 3-4 unit) and again.....lose that monthly rent payment.
None of us can actually answer your question without more numbers, but it sounds like you have some good options.
$2700/mo just the PITI. So cash-flowing about $500/mo not including other operating expenses. Thanks for the advice!
Quote from @John Furey:
Hi - I currently own an Investment property. My payments on the property are $2,700/mo and it currently rents for $3200/mo. I bought it in 2016 with a 30-year fixed rate mortgage on it at 3.5% interest. The remaining loan is $330,000 and the appraisal value for the home is currently $500,000.
Outside of an employer 401k and the equity in this property my wife and I don't have very much savings. We are currently renting but are planning on starting a family and would like to purchase a single-family home for us to live in. We would also like to get into more real estate investing.
Given that we have a cash-flow positive rental, want to purchase a home for ourselves, and also want to pursue other investment properties. We are looking for some financial advice on the best path forward given that nearly all of our savings are tied up in the current rental property.
Does it make sense to sell the current property and use that profit to fund both our house and an investment property? Or does it make sense to pull the equity out of our current investment property?
Happy to answer any additional questions you would have and any advice would be greatly appreciated!!
How much would the property cash flow if you decided to do a cash out refinance? How much would you be able to pull out by refinancing vs selling? If you want to continue growing your portfolio it's probably better to keep the property and refinance so you can buy your primary home and continue investing.
Though not the best cash flow after your expenses, at least it's taking care of itself and you don't have to come out of pocket. Rents will continue to go up and homes will continue to appreciate. You do have a lot of trapped equity in there, unfortunately. If I were in your shoes, I'd either sell (return on equity) or hold onto the home if the location is great. Then buy a FHA multifamily.
If $500/mo cash flow isn't taking into consideration any operating expenses, that's not a huuuuge number, but not everyone does this for the cash flow. You've definitely build up some good equity. If you're happy with your current situation with the rental and don't want to sell, you could use a HELOC or a HELOAN to pull the equity without having to sell, and without losing the rate in your first mortgage.
Things to consider are whether or not you can swing that mortgage, a new mortgage and a HELOC/HELOAN payment, and what type of loan you plan to use on your new property. Conventional financing will look at your DTI, so you could run into issues there. There are non-traditional options that won't factor DTI, but you'll run into higher down payment requirements and overall costs on that type of loan since they're a higher risk for a lender.
You could house back and buy a multifamily property, live in one unit and rent out the others, but with wanting to start a family this may or may not be ideal.
Let me know if you have any questions, happy to chat.
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