What to do with rental

10 Replies

I currently own a rental home. It was once my primary residence and now a rental. It is on a 30yr @6.75% term. It is currently one year I to a 3 year term renting at the top of rental market.

I have an opportunity to refi at around 4%. If i do balance 135000 refi with market value at about 155000 at 4% I could generate a 300 per month cash flow out if it. Currently it is a negative cash flow.

Should I refi and keep it as a good rental or sell at my next opportunity?

How much rent are you getting? Impossible to evaluate without knowing the rent.

I am currently renting it for 1495.00 per month. I also pay HOA (65 per month) and lawn service at 60 per month. My current mortgage with escrows are 1475 per month.

If I refi I can cut that piti down to around 1100.

Originally posted by @Todd Cianciulli :
I am currently renting it for 1495.00 per month. I also pay HOA (65 per month) and lawn service at 60 per month. My current mortgage with escrows are 1475 per month.
If I refi I can cut that piti down to around 1100.

HI Todd,

It depends on your cash on cash return or other metric by which you analyze property and your criteria.

If you're making 300 per month estimated thats 3600 a year divided by estimated available equity of 20,000 (155k - 135k) which would be a 18% cash on cash return.

Realistically its not 20k because of transaction costs so another way you could look at is to deduct the "what if I sold it," transaction costs out of your available 20k equity. Average transaction costs are around 7% of the sales price of 155k so that leaves you with 9150 equity if you sold the property.

Now when you compare the 3600 annual cash flow over the 9150 equity you're making over 30% COC return with out even factoring in depreciation, amortization, or appreciation (if any).

You could also use gross rent multiplier, cap rate, break even ratio, or others but I usually use cash on cash and or cap rate personally.

Originally posted by @Todd Cianciulli :
I currently own a rental home. It was once my primary residence and now a rental. It is on a 30yr @6.75% term. It is currently one year I to a 3 year term renting at the top of rental market.
I have an opportunity to refi at around 4%. If i do balance 135000 refi with market value at about 155000 at 4% I could generate a 300 per month cash flow out if it. Currently it is a negative cash flow.

Should I refi and keep it as a good rental or sell at my next opportunity?

At 135k the loan must be a fannie mae owned refinance (no appraisal required) because you dont have enough equity to refinance with standard conventional financing (min 80% LTV, your at 87%).

30 year fixed pricing is probably around 4.625% for non owner refinance with 740 + fico, at 4.00% rate flat its 4.25 pts cost. Unless you were referring to ARM products or niche products.

I am currently renting it for 1495.00 per month. I also pay HOA (65 per month) and lawn service at 60 per month. My current mortgage with escrows are 1475 per month.

If I refi I can cut that piti down to around 1100. So @Albert Bui do you recommend that I go ahead and do a new 30 year refi?

@Albert Bui it will end up being a HARP loan according to my mortgage guy because of the lack of equity. That scares me a little since I am unfamiliar with HARP loans.

Originally posted by @Todd Cianciulli :
I am currently renting it for 1495.00 per month. I also pay HOA (65 per month) and lawn service at 60 per month. My current mortgage with escrows are 1475 per month.
If I refi I can cut that piti down to around 1100. So Albert Bui do you recommend that I go ahead and do a new 30 year refi?

Personally going purely off finance alone I wouldnt sell it because there is barely any meat in that deal in order for me to sell and reposition that equity some where else. I would just keep it unless you have emotional factors that may lead you to sell this property.

Originally posted by @Todd Cianciulli :
Albert Bui it will end up being a HARP loan according to my mortgage guy because of the lack of equity. That scares me a little since I am unfamiliar with HARP loans.

HARP refinance is no big deal, in essence its a conventional loan with a bit more premium pricing over standard conventional pricing, but the upside is that it does not require an appraisal so your loan balance relative to the current market value is not an issue (to a certain extent my max is 150% LTV for non owner and unlimited LTV for owner/2nd residences).

If he can give you a 4.00% 30 year fixed I would double check it and take if I could!

I will dbl check with him berates have probably gone up since I last spoke to him but I think I will do it. Is like to keep this as a long term rental. The area is really seeing some growth.

Not sure why my phone changes the word rates to berates but I think you understood.

Thank you for your advice.

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